An Economic Explanation For Why DRM Cannot Open Up New Business Model Opportunities

from the shrinking,-not-expanding,-the-pie dept

Continuing my increasingly lengthy series of posts on the economics of non-scarce goods, I wanted to take a look at an issue that I mentioned in passing earlier this week concerning the ongoing insistence among the entertainment industry (and the DRM industry) that DRM somehow will open up new business models. I'd like to explain why, economically, that doesn't make sense.

First, to clarify, I should point out that, technically, I mean that it doesn't make sense that DRM could ever open up feasible or successful business models. Anyone can create a new unsuccessful business model. For example, I'm now selling $1 bills for $1,000. It's a new business model (well, perhaps not to the dot coms of the original dot com boom), but it's unlikely to be a successful one (if you disagree, and would like to pay me $1,000 for $1, please use the feedback form above to make arrangements). However, for a new business model to make sense, it needs to provide more value. Providing more value than people can get elsewhere is the reason why a business model succeeds. So, any new business model must be based on adding additional value.

The good news is that value is not a scarce concept. Unfortunately, there are too many in this world who view value and growth as a zero-sum game. They believe that there's some fundamental limit on the possibility of adding value, and therefore, business models are about moving around a limited amount of value, rather than expanding it. It's the same fallacy facing those who have trouble understanding zero and infinity in economics. The economist Paul Romer's discussion on Economic Growth offers a concise explanation for this:

Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.

Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. The difficulty is the same one we have with compounding. Possibilities do not add up. They multiply.

Note that it's the non-scarce products, the recipes and the ideas, that helps expand the value of the limited resources, the ingredients. You expand value by creating new non-scarce goods that make scarce goods more valuable -- and you can keep on doing so, indefinitely. Successful new business models are about creating those non-scarce goods and helping them increase value. Any new business model must be based around increasing the overall pie. It's about recognizing that creating value isn't about shifting around pieces of a limited economic pie -- but making the overall pie bigger.

DRM is fundamentally opposed to this concept. It is not increasing value for the consumer in any way, but about limiting it. It takes the non-scarce goods, the very thing that helps increase value, and constrains them. Those non-scarce goods are what increase the pie and open up new opportunities for those who know where to capture the monetary rewards of that value (within other limited resources). DRM, on the other hand, holds back that value and prevents it from being realized. It shrinks the pie -- and no successful business models come out of providing less value and shrinking the overall pie. Fundamentally, DRM cannot create a successful new business model. It can only contain one.
If you're looking to catch up on the posts in the series, I've listed them out below:

Re:

I certainly don't! After you stopping paying the monthly fee then the music goes away. This is renting music and I'll admit to a certain curious nature of a service like that could be nice but certainly not at the current prices. I know a friend that love the subscription service for his boy cause then then he gets to pick a bunch but for me it won't work. However I don't worry about a service as my library can play for 3 months straight and is all DRM free. What drm tracks I did have I stripped off.

I agree with most of your post. However I would take an objection to your point that the "recipe" or "intellectual property" is a non scarce good.Actually it is also a scarce good, because one can patent one's "recepies" and no one else can use them.

Re:

Mike.. Simple question, Do you see any value in a subscription service? Pay a monthly fee and have access to unlimited ammount of content.

I think there's value in a subscription to *new* content. However, I do not see value in subscribing to previously created content. That's artificially limiting supply where it's not necessary and not helpful.

There, I said it, DRM is a fact of life. That being said, the DRM that has been used by the music industry is not in their best interest.

Companies do need to be able to protect their content, but they also need to ensure that their customers can use their content the way they want. That doesn't mean being able to send it to their friends, but if they choose to use their content on a pda, a computer, their TV, whatever, they need to be able to do so.

Thinking that DRM is bad is just wrong. Bad DRM is wrong, but DRM itself isn't.

Not so fast

As much as I hate the MPAA and RIAA and would like to believe that there business model does not add value and is inevitably doomed, this is not the case. As an economist by training, I see a number of problems with your reasoning.

Note that everything I say here applies to movies, too, but for simplicity’s sake, I’m just going to mention music.

First, as someone else here mentioned, the recipes and other intellectual property involved in producing music is scarce in the sense that not everyone has the talent and/or creativity to create music that people want to hear. If you don’t believe me, then you haven’t heard as much non-talented “music” as I have (even though I have very broad taste in music).

If talented musical artists cannot get compensated for their efforts, then they will spend more and more of their time doing other things to pay the bills, even if they like creating music, since they need to eat, have a roof over their heads, etc. In order for artists to get compensated, there needs to be a feedback mechanism where they get compensated if people like their music. If not such mechanism exists, then artists will underallocate the time they spend creating music and spend more time doing things that pay the bills. This is especially true as they get older and the cold hurt more, they need more medical care, etc.

Second, unfortunate as it may be, the music labels do add some value. Not much, but some. As the entities that distribute music, they offer exposure for artists’ music, which can benefit artists and consumers alike. Now, IMHO, they charge many times too much for this service. However, it is hard to deny that the music they distribute is valued by at least some of those who listen to that music. If it didn’t, people wouldn’t buy that music and the music labels would go out of business very quickly. And don’t give me that “brainwashed masses” argument. It’s condescending to the “masses” and intellectually dishonest.

Another argument that reinforces the idea that the music labels offer value to artists is that artists sign up with them. If the artists didn’t think that they would get any value out of the services music labels offer, then they wouldn’t sign up.

Note that many artists don’t sign up with music labels. However, having known many musical artists (I lived in Austin, TX for 5 years, a GREAT city for almost every kind of music, including punk, alternative, psychobilly, etc.), I think that that most often this is not due to the choice of the artist. Most artists would LOVE to be distributed by a label, even ones that create music because they love doing it and don’t really do it for the money, since they know that their music, which they believe in, will reach more people by signing up with a label than by not signing up. Still, some would never sign with a label under any circumstances, and that’s their right.

It seems to me that a business model that would work to get the maximum amount of music to the maximum number of receptive listeners would be an “expiring free listen license”. This would work on the same basic premise that the existing song segment approach uses (where you get to listen to part of a song for free, but if you want to listen to the whole song, you have to buy it). But I think it’s a bit more progressive.

Basically, I would envision a musical website where users would have the opportunity to listen to any music on the site, and they would get to listen to the song a certain number of times (probably something less than 10 times), which might be determined by the artist or by an agreement between the artists and the website, for free. After the user had listened to the song the allocated number of times, the ability to listen to the song would expire, unless the user paid for the song. Ideally, the website would also have other services, such as providing musical suggestions to users, based on their ratings of music they listened to, and artist, song and keyword searches, etc. I think this kind of website would add value to both users and artists alike.

Scarce versus Non-scarce

Mike,

I think of Wikipedia as taking non-scarce resources (disparate, maybe fragmentary information about topics) and creating a scarce resource (a massive central source of organized information). That seems the opposite of statement that "[y]ou expand value by creating new non-scarce goods that make scarce goods more valuable.."

And a second point, I agree with an earlier commenter, that a 'recipe' may be a very scarce resource, if it is a secret or if it is patented. Yet if it has any value, the recipe would allow a (authorized) 'cook' to produce exceptional 'dining experiences'. This also does not seem to fit your stated principle.

Let me say that I'm strongly with you that DRM-based business models are fundamentally flawed, but I suspect my reasons for this belief are different from yours.

Scarce versus Non-scarce

Mike,

I think of Wikipedia as taking non-scarce resources (disparate, maybe fragmentary information about topics) and creating a scarce resource (a massive central source of organized information). That seems the opposite of statement that "[y]ou expand value by creating new non-scarce goods that make scarce goods more valuable.."

And a second point, I agree with an earlier commenter, that a 'recipe' may be a very scarce resource, if it is a secret or if it is patented. Yet if it has any value, the recipe would allow a (authorized) 'cook' to produce exceptional 'dining experiences'. This also does not seem to fit your stated principle.

Let me say that I'm strongly with you that DRM-based business models are fundamentally flawed, but I suspect my reasons for this belief are different from yours.

Re: Not so fast

First, as someone else here mentioned, the recipes and other intellectual property involved in producing music is scarce in the sense that not everyone has the talent and/or creativity to create music that people want to hear.

That's different. That's the creation of NEW content, which is scarce. The content created (or the recipes created), once created, are non-scarce. It's an extremely important distinction.

Second, unfortunate as it may be, the music labels do add some value. Not much, but some.

I never said they did not. I said that DRM does not add value. I actually think the record labels often add quite a bit of value in terms of promotion and distribution. I am not saying they don't add value. I'm explaining why DRM does not add value, but limits it.

Basically, I would envision a musical website where users would have the opportunity to listen to any music on the site, and they would get to listen to the song a certain number of times (probably something less than 10 times), which might be determined by the artist or by an agreement between the artists and the website, for free.

Yeah, see that doesn't add value. It takes away value from the competition -- which remains free file sharing. You don't build new business models by taking away value.

Re: Scarce versus Non-scarce

I think of Wikipedia as taking non-scarce resources (disparate, maybe fragmentary information about topics) and creating a scarce resource (a massive central source of organized information). That seems the opposite of statement that "[y]ou expand value by creating new non-scarce goods that make scarce goods more valuable.."

How is Wikipedia scarce? Wikipedia is increasing value in a different way. It's taking a non-scarce resource (information) and making it value by helping people find that information (i.e., the scarce resource they're making more value is attention: people have only so much time and attention to find the information they need. Wikipedia is adding value by applying the non-scarce resource to help make the scarce resource more valuable).

And a second point, I agree with an earlier commenter, that a 'recipe' may be a very scarce resource, if it is a secret or if it is patented

That's a different situation. That's where you've created artificial scarcity, which is a market inefficiency that won't last.

managing abundance

"Possibilities do not add up. They multiply."

No, they combine factorially.

But let's move from math to psychology, which I think is far more important in understanding the zero-sum myth. Most people are not comfortable with abundance in Western society. They don't trust it as a stable state of affairs. Psychiatrists or psychotherapists will probably point to influences in the children of even very rich parents which instill a deep fear of impending scarcity. But in fact this a natural phenomenon, rooted deep within the primate behaviour since we are hunter-gatherers who live on a rotating planet that has seasons. We are essentially programmed to hoarde and worry about availability.

Read the Spolied Bastard strip (I gave a link the other day) where Timmy makes himself vomit by eating all the pies just to make sure that none of the other kids get to have any.

It takes a while to get your head around, but once you recognise the "your gain must be my loss" schema at work you will start to see it all around you in your friends, family, workmates and especially in the world of business and politics. It's a powerful and common human misunderstanding (pathology is too strong a word, it's the same counterintuition that means most people don't understand probablility)

Business models

Mike,

How is Wikipedia scarce? Wikipedia is increasing value in a different way. It's taking a non-scarce resource (information) and making it value by helping people find that information (i.e., the scarce resource they're making more value is attention: people have only so much time and attention to find the information they need. Wikipedia is adding value by applying the non-scarce resource to help make the scarce resource more valuable).

Well its scarce because there's only one Wikipedia. But the point is that you could certainly build a number of potentially successful business models around Wikipedia. And this seems to contradict your belief about the underlying principle of what must go into a successful business model.

That's a different situation. That's where you've created artificial scarcity, which is a market inefficiency that won't last.

I don't follow you. What's 'artificial' about it? And, why do you conclude that it "won't last"?

Re: Business models

Hmm. I believe you're defining scarcity in a different way. Wikipedia is not scarce. It can't be "used up." My viewing it doesn't make it any less possibly for you to view it.

But the point is that you could certainly build a number of potentially successful business models around Wikipedia. And this seems to contradict your belief about the underlying principle of what must go into a successful business model.

I'm sorry, but I don't see how Wikipedia undermines my point at all. I agree that there are any number of business models that come out of Wikipedia, and all are based on the fact that Wikipedia adds value. Which supports my explanation.

I guess I just don't see what you're trying to say.

I don't follow you. What's 'artificial' about it? And, why do you conclude that it "won't last"?

A patent is a construct. It's an agreement to pretend a non-scarce product (an idea) is a scarce one. That's why it's artificial. And it won't last because the very nature of a non-scarce good is that it can be shared infinitely. That's what I've been explaining here.

Patents already don't last...

Re: Re: Not so fast

This post is so off-point in so many dimensions I really don't know where to start.

Economics is really at its core primarily about incentives to use resources efficiently. While "efficiently" can be and is defined in many ways, depending on where you want to end up, I am assuming that when we discuss music we want as much "good music" (another subjective term that I would be inclined to let an "efficient" market define) to get into as many hands as possible over the long run.

Saying that once content is created it is no longer scarce is like saying, "Well, you've already built the car, so why not just give it away?" Now, if you want to say that the marginal cost of reproducing digital music is very small, I buy that. But you're artificially breaking apart the necessary processes to get the digital music into the hands of those who want it. You're completely ignoring the incentive effect to create more new music. In the physical world, your logic would lead to completely depleting a natural resource that was limited, but easy to extract. Then it's gone. Your logic does nto lead to a sustainable system.

I'm explaining why DRM does not add value, but limits it.

Properly functioning DRM is a mechanism for recovering value. And that is its value. I was making the case why it is valuable to society in the long run if properly implemented.

Yeah, see that doesn't add value. It takes away value from the competition -- which remains free file sharing. You don't build new business models by taking away value.

Actually, it does create value. For artists, it: (1) offers them exposure and a facility that permits potential listeners to access their music and (2) creates a system for a feedback loop of rewards to artists so that they can make a decent living using their talents so that they continue to make new music. For users, it provides the opportunity to (1) find music they want to find; (2) find out about new music that they haven't heard yet; (3) listen to new (or not new) music for free; and (4) buy it if they want to continue using it indefinitely, which I woudl think would be valuable (otherwise, they wouldn't value it).

Providing "free" music as the primary method of music distribution in the world isn't sustainable unless some rich guy decides to spend billion of dollars per year to design and host a site for free. And even then, if artists are not compensated, they will eventually stop producing their art, or at least produce much less of it than they would if they were able to make a decent living off of it.

Re: Re: Re: Not so fast

That's exactly what he's saying. If there were no government-sponsored legal system to prevent you from copying a BMW, anyone who had the necessary funds could make a copy of a BMW. The value in a BMW comes from the value added by BMW.

You are not buying a BMW, you are buying the image of someone with a BMW.

You focus is still too narrow, for the artists the values are the same under either business model. Initially I agreed with your proposal for an expiring DRM to "test-drive" songs, until being reminded that the competition is free. Storage costs are negligible as well. The money, for the RIAA is where it's always been: touring & selling merchandise.

people don't go to concerts specifically for the music, they go for the experience. some of them will inevitably buy merchandise to commemorate the occasion. Companies who jump on the bandwagon and take advantage of digital delivery are going to eventually reap massive amounts of money selling anything they can think of that is a "one-off".

if you weren't here. you weren't living

As a matter of fact, if anyone's got the advantages necessary to get started, it's them! They can start investigating the millions of bands cluttering MySpace and getting demos. just cleaning up the sound on some of these guys would probably get them started towards making some money.

find the really good ones! get them out there! digital advertising!

NOW PLAYING IN YOUR LOCAL BAR:

Artists are going to have to give up on their dreams of becoming huge mega-stars and accept that if they're truly artists they have to work for a living. work is difficult, exhausting, and after 30 years of it you get to retire. what kind of artists can innovate for 30 years?

innovative ones.
ones who are constantly looking around, evaluating what they bring to the world...and increasing their value.

the money's out there boys, you're just not in the industry you thought you were.

archaic thinking

John. I believe you really have an enourmous journey ahead of you to start to grasp the concepts being discussed here. Sorry, but you are engaging in a 21st century argument with 20th century ideas and I don't think you realise how different the ideologies discussed on this site are from your position.

"Properly functioning DRM is a mechanism for recovering value."

Comple nonsense, unless you are using the word incorrectly. It is a mechanism for extracting profit by creating artificial scarcity and lowering the product value. Please take a look at many of the threads on this site and understand that we draw subtle but very important distinctions between "value", "profit", "wealth" and "money".

"For artists, it: (1) offers them exposure and a facility that permits potential listeners to access their music"

It offers no such advantage, in fact it restricts that process. They already have that mechanism which does not require DRM.
It's called the internet, a system of interconnected servers and routers that provides dissemination of material for practically zero cost.

" and (2) creates a system for a feedback loop of rewards to artists so that they can make a decent living using their talents so that they continue to make new music."

Firstly, they already have that. See above. There is simply no incentive for an artists to cripple their work and reduce its interoperability with commonly used standard playback systems.

You completely fail to understand the motivation of artists, which is not primarily financial. Musicians whos primary motivation is money tend to make shit music. The old system to which you allude is one which selects only a few artists to be the privillaged benefactors of a system that rewards them at the expense of all other musicans, it is exclusive, devisive and an attempt to perpetuate the zero-sum fallacy that we are arguing against here.

"For users, it provides the opportunity to (1) find music they want to find"

No. That is a search and refinement problem, it has nothing whatsoever to do with DRM.

"(2) find out about new music that they haven't heard yet; "

Again, what possible relevance does DRM have to the task of selection by categorical similarity in genre?

"(3) listen to new (or not new) music for free; "

Again, DRM plays no part whatsoever in this process which is accomplished by the available tools of P2P, aggregation and DJ sites, netlables and individual artist site indexes.

"and (4) buy it if they want to continue using it indefinitely, which I would think would be valuable (otherwise, they wouldn't value it)."

You are working with an old paradigm of "buy" and "value" which I suspect involves reducing the "song" to a unit product of fixed cost. The modern internet culture is about building relationships between audiences and artists at a peer level. Many successful models are emerging where the audience pay for music directly to the artist or netlable through subscriptions, donations, and other social exchange currencies (such as promoting, hosting, dissemination). In itself data is just bits, 1s and 0s, it has no value whatsoever. The value is a psychological connection, a relationship between the listener and the artists product in regards to its emotional and cultural context.

"Providing "free" music as the primary method of music distribution in the world isn't sustainable unless some rich guy decides to spend billion of dollars per year to design and host a site for free."

Absolute nonsense. Go and search the internet for the MILLIONS of artists out there who now manage and administrate their own output. The modern artist is very technologically savvy and sees maintainance of their own site as part and parcel of the business of dissemination and identity. Hosting and bandwidth is virtually a commodity and these days only absolute amateurs have not taken the step to manage their own output.

"And even then, if artists are not compensated, they will eventually stop producing their art, or at least produce much less of it than they would if they were able to make a decent living off of it."

Please search the archives and see how many times this erroneous thinking has been shot down in flames. Financial reward is not a precursor to artistic output. There is no one to one or proportional correspondence between cashflow and artistic output. Some of the best bands and solo artists around today have proper day jobs as professionals in other domains. They use this as a platform to make art in their spare time, which eventually becomes an additional income (sometimes exceeding their salary). The old days of the record company sponsored full time artist is virtually dead save for a few plastic manufactured pop acts and touring stadium rock bands from the old guard.

I hope you can get up to speed on the philosophies and observations under discussion here, but it will mean letting go of a lot of what you think you know about the old music business.

Re: Re: Re: Re: Not so fast

You're missing the points I am making entirely. Also, you’re mistaken about the BMW on one point: Anyone with the necessary resources (which would be pretty significant) can make a BMW. Patent law doesn't prevent you from making a copy; it prevents you from using the patent for commercial purposes. You can make a BMW for yourself, you just can't sell it. But I get your point about buying an image, and I think that's a valid (if obvious) point.

Now on to the more important points (IMHO):

First: "for the artists the values are the same under either business model" No. Under my model they get paid, under a free music model they don't.

Second: "Initially I agreed with your proposal for an expiring DRM to "test-drive" songs, until being reminded that the competition is free." Free music isn't a sustainable model. If not one gets paid, no one is going to keep creating music for long; there are too many bills to pay. And no one is going to keep up a website and its associated capabilities (search, taste-matching databases, high speed throughput, etc.) for free.

Finally, I want to agree with you on a very good point you made that agrees with a realization I had seven or eight years ago:

Artists are going to have to give up on their dreams of becoming huge mega-stars and accept that if they're truly artists they have to work for a living. work is difficult, exhausting, and after 30 years of it you get to retire. What kind of artists can innovate for 30 years?

innovative ones.
ones who are constantly looking around, evaluating what they bring to the world...and increasing their value.

I'm glad other people are finally realizing this. Round about 1998, I realized that modern society was going through a major transformation. It's moving from a mass media model back to a tribal model. Only, instead of the tribes being based upon ethnicity and geography, as they were for thousands of years (and still are today in some places), the tribes are based upon interests and belief systems and values. And membership is optional and movable.

Re: Re: Re: Not so fast

Saying that once content is created it is no longer scarce is like saying, "Well, you've already built the car, so why not just give it away?"

Um. No. It's not at all. A car is scarce. If I take your car, you no longer have it. If I copy your song, you still have it. That's the entire root of this discussion. I would suggest that you go back and read through the earlier parts of this series.

You're completely ignoring the incentive effect to create more new music. In the physical world, your logic would lead to completely depleting a natural resource that was limited, but easy to extract. Then it's gone. Your logic does nto lead to a sustainable system.

This is false. I am not at all ignoring the incentive effect. I have discussed this at length. Increasing value does create incentives. The trick is figuring out where those incentives can be monetized.

Properly functioning DRM is a mechanism for recovering value. And that is its value. I was making the case why it is valuable to society in the long run if properly implemented.

No. You are looking at value incorrectly. You are only looking at it in terms of the producer -- which is meaningless. Value only matters from the perspective of the consumer.

Providing "free" music as the primary method of music distribution in the world isn't sustainable unless some rich guy decides to spend billion of dollars per year to design and host a site for free

Yes, that's why there are so many bands that have learned how to profit from giving away free music. I'm sorry, but you are simply wrong.

And even then, if artists are not compensated, they will eventually stop producing their art, or at least produce much less of it than they would if they were able to make a decent living off of it.

First, you are making the false assumption that I said artists won't be compensated. That's not true at all. I have said there are actually more opportunities for them to be compensated in this system, because they will have more attention and more value.

Please read some of the past articles in this series, because it explains a lot of these points that you seem to be missing.

Re: archaic thinking

With all due respect, MH, I think I understand this far better than you do. I have been studying these kinds of issues in both academia and the business world since I was in graduate school 16 years ago. I have founded and owned two internet-related businesses (the current one is earning me a nice income), and one of which was music-related (oh, and it was "free").

I understand value, but I think you have too narrow a definition. DRM helps recover investment. It recovers money. If you don't think money is valuable, please send me all of yours. I am sure I can find something valuable to do with it.

"For artists, it: (1) offers them exposure and a facility that permits potential listeners to access their music"

It offers no such advantage, in fact it restricts that process. They already have that mechanism which does not require DRM.
It's called the internet, a system of interconnected servers and routers that provides dissemination of material for practically zero cost.

I don't think you understand the interrelated points I am making. But first I think I need to clarify something. Time is valuable. To everyone. Without exception. The search costs of finding music that one likes on the wide open internet, in terms of time, have become enormous. And, when you find the music you like, I'm betting that it's on a website somewhere, where someone has to pay for it. And program it. And maintain it. Etc. Web sites don't just happen. Web servers don't just appear. Eventually, they have to be paid for. That's one reason (not the only one) why the free music model isn't sustainable.

Don't get me wrong. I know there will always be "free" music. "Free" music existed long before the computer was invented. People sang and played instruments in their houses for family and friends and didn’t charge a penny for it. But the range of songs was very limited, quality was highly variable and it required a fair amount of effort to produce each time it was heard.

Now, the costs of reproducing the music are much lower. It's the search costs and the background infrastructure costs that are more important. Organizing the songs, "match-making" (between interested listeners with songs they like) and reducing search time is the advantage of having them on one or more related structured websites. And that doesn't happen for free for long.

Firstly, they already have that. See above. There is simply no incentive for an artists to cripple their work and reduce its interoperability with commonly used standard playback systems.

You completely fail to understand the motivation of artists, which is not primarily financial. Musicians whos primary motivation is money tend to make shit music. The old system to which you allude is one which selects only a few artists to be the privillaged benefactors of a system that rewards them at the expense of all other musicans, it is exclusive, devisive and an attempt to perpetuate the zero-sum fallacy that we are arguing against here

Money is an incentive. Like it or not, it is. Money is a means. It is the liquid asset that reduced the need for bartering, which was a very cumbersome way of doing business. And I do understand that artists do what they do for reasons other than money, as I have specifically indicated in my previous posts. I like to write. I write poetry and have even won some national awards for it. I do understand the artist motivation very well. I wish I could make a living at it. But, realistically, I can't. And so, like many other people who like to create, my art is relegated to being a small hobby, since I can't make a living at it. People will only spend so much time doing something that doesn't make them a living when there are bills to pay. I've lost count of the artist friends that I have had who were talented and did not do their art for the money, but who have either stopped doing their art or do it very rarely because of the pressures of everyday life. Now, if they could make a decent living at it (and I'm not talking riches here, I mean even $20-$40K per year), they would still be doing it. By the way, I do agree with your last sentence in the paragraph above.

No. That is a search and refinement problem, it has nothing whatsoever to do with DRM.

So, who pays for developing and maintaining it? That's where DRM comes in. It's a means of financing the necessary infrastructure. I know that sounds like the rationale for the old record labels, and there are some similarities in the logic. But what I am proposing is much closer to the peer-to-peer situation you espouse than I think you realize. Bandwidth and server hosting costs have gotten quite reasonable, but they are not as close to zero as you seem to think. But, to the extent there is competition in the market, which I think there is, these costs will work their way into the business model I am proposing.

Let me clarify something. The system I am envisioning would not charge $1 per song, like iTunes, but probably closer to 10 cents per song, or whatever would cover the costs of establishing and maintaining the system.

Let me ask you this: Which is more efficient, both in terms of IT resources and in terms of user and artists cost in terms of time: 3 million websites on 500,000 servers spread around the globe with no organized connection OR one or a handful of competing sites that actually help organize and track the stuff? Which do you think will have lower search and transaction costs? Now, which do you think is the most likely to be the dominant model?

Re: Re: Re: Re: Re: Not so fast

Free music isn't a sustainable model. If not one gets paid, no one is going to keep creating music for long; there are too many bills to pay. And no one is going to keep up a website and its associated capabilities (search, taste-matching databases, high speed throughput, etc.) for free.

Again, you are making a very wrong assumption here, that no one is getting compensated. We have made it abundantly clear that there are plenty of ways to get compensated by focusing on things that are actually scarce: access to the band, concerts, merchandise, new songs (which are scarce until created), etc, etc, etc. There are many different business models for getting paid (and getting paid more than they do under the current system) and then using the actual music (which is non-scarce) as a promotional vehicle.

So, everything you say about musicians not having incentive is simply wrong. There are still incentives. They're just different. There is still compensation. It just comes from different places -- and thanks to the new system it's even easier for *more* artists to make *more* money than they would have otherwise, because it takes out many of the initial barriers in terms of cost of production, promotion and distribution.

Re: Re: archaic thinking

I understand value, but I think you have too narrow a definition. DRM helps recover investment. It recovers money. If you don't think money is valuable, please send me all of yours. I am sure I can find something valuable to do with it.

There's an important distinction in here: recovering investment has nothing to do with expanding value. It's another form of the broken window fallacy. Just because many exchanges hands, it doesn't mean that value has been increased.

Let me give you an example. I "invest" $1000 to outfit a burglar to go rob every house on the block. I have recovered plenty of money on investment. But have I increased value? No. I have increased my own net worth, but at the expense of someone else. That's a net negative, and is not a sustainable growth model. Growth is based on adding value so that everyone gains out of a transaction. DRM doesn't do that. It only benefits one side while limiting the other.

Now, the costs of reproducing the music are much lower. It's the search costs and the background infrastructure costs that are more important. Organizing the songs, "match-making" (between interested listeners with songs they like) and reducing search time is the advantage of having them on one or more related structured websites. And that doesn't happen for free for long.

Well, first, I'd say that it does happen for free -- if you look at the peer production world, there are plenty of models where it makes sense and has happened.

But, again, you make a very big false assumption here that the *only* way to get money out of the system is with DRM. That's false. Nothing that you say requires DRM. DRM only limits each of the models you discuss.

The SellaBand business model

"If I give you a pfennig, you will be one pfennig richer and I'll be one pfennig poorer. But if I give you an idea, you will have a new idea, but I shall still have it, too."
-- Albert Einstein

There is a new music startup with a business model that does use non-scarce goods to its full potential: SellaBand. They let everyone download the music for free (no DRM). They will generate revenue with ads on the download site, to cover the hosting. They let the community finance the recording by selling $10 parts up front (they can get a refund, so there is no risk), for which they will also receive a limited edition CD. That also provides them with a revenue stream from the interest on the money paid up front. You can read it all on their site, the main feature here is the free downloads and that you can create a sustainable business model that preserves non-scarce goods, meaning: without limiting their use which artificially makes them appear as 'scarce'-goods.

From the point of view of the 'common good' it is highly desirable not to put artificial limitations on non-scarce goods. For example we would like the people in the developing world to be freeloaders when it comes to Wikipedia. That is why I would prefer the SellaBand business model over subscription models. However if too many in the western world try to get a free ride, a subscription model might give better results. I think we should try both and see what works best.

Re: Re: archaic thinking

I understand value, but I think you have too narrow a definition. DRM helps recover investment. It recovers money. If you don't think money is valuable, please send me all of yours. I am sure I can find something valuable to do with it.

This has nothing to do with how "narrow a definition" we are using. It has to do with perspective. An artist may see value in DRM because, as you say, they believe it will recover their investment. The end consumer sees no value in DRM because it restricts how they can use the content. If the consumer sees no value in DRM, then it is likely to fail, regardless if it is useful to the artist.

The only way for DRM to 'succeed' is by passing laws that makes DRM mandatory for all digital sources. And that my friend, is a government approved distortion of an efficient market.

Re: Re: Re: Re: Re: Re: Not so fast

Free music isn't a sustainable model. If not one gets paid, no one is going to keep creating music for long;

I'd say there's a fundamental misunderstanding illustrated here. Nobody's arguing that music should be given away - the argument to use the open source terminology is that music should be free (as in freedom), but not necessarily free (as in beer).

I get all my music free - as in DRM-free. I subscribe to eMusic, where artists get paid for the music I download. I download podcasts from clubs and radio stations, where either contacts involving artist payment have been made, or the artist/producer have made a decision not to charge for that performance on the hope that it leads to further sales.

I'm not stealing music. I'm simply getting my entertainment from sources that don't assume I'm a criminal. I don't use iTunes due to DRM (because Apple don't want me to use my purchased music on my non-iPod mp3 player or on my Linux desktop). I don't buy major label albums (because I don't want to financially support any DRM actions). However, the artists I enjoy get paid by me for entertaining me.

And that's how it should be. DRM is about removing certain rights (the right to play back in the device of my choicefor instance), and then 'sell' those rights back to you, ad infinitum.This doesn't encourage anything other than a lack of innovation in the record industry, where they can argue that profits are theirs, but any losses are due to 'piracy' rather than their own actions.

As for the second point above, a true artist creates because they want to, not for money. The 'starving artist' cliche came about for a reason - most people who create, be it music, books, paintings or anything else, do it because they want to, for their own personal satifaction. Anyone who only creates for the money is a hack, and we're better off not encoraging hacks.

DRM

Interesting points brought up by all...
I agree DRM is a lose-lose situation for all. Plus anyone can turn a DRM-song into a non DRM-song! I've never done it, but I know I could easily. Soon the whole model is going to change anyway, more and more consumers are using encrypted file-sharing to swap files, GigaTribe being the most recent example ( http://www.gigatribe.com ).
The record and movie industry needs to eliminate all middlemen and cut prices in half, THAT will make for a more profitable business.

Sorry

Sorry Mike, I think you're out in left field on this one.

The reason people say that DRM INCREASES the pie is because it can be used to offer different levels of value for different prices.

For example, DRM, with its constraints, would allow you to download a song you can only listen to once. That song would cost substantially less than a song that 's totally unlocked. If there is someone who only wants to hear a song once, for, say, $.25 cents, VOILA! you've created value. That would be impossible without DRM.

Re: Sorry

The reason people say that DRM INCREASES the pie is because it can be used to offer different levels of value for different prices.

Again, you've made the same mistake that others made. That appears to increase value for the producer, but not the consumer, and thus TAKES AWAY value from the consumer.

For example, DRM, with its constraints, would allow you to download a song you can only listen to once. That song would cost substantially less than a song that 's totally unlocked. If there is someone who only wants to hear a song once, for, say, $.25 cents, VOILA! you've created value. That would be impossible without DRM.

Again, that doesn't create value. That takes away value from the user. They are buying something that's limited for much more than they can get it from other sources..

Re: Re:

Mike wrote:

I think there's value in a subscription to *new* content. However, I do not see value in subscribing to previously created content. That's artificially limiting supply where it's not necessary and not helpful.

I'm just so confused. Scenario: I realized last week I wanted to find the John Prine album that had "Sam Stone" on it. And since I subscribe to an all-you-can-eat music service, in seconds I was listening to the album. I don't care if it vaporizes after I stop subscribing. The John Prine album happens to be old content. The story could just as easily been about Erin McKeown, whose album is new. Why the new/old difference? I value both identically.

Without quoting lots of economic gobbledeygook which I find incomprehensible, can you concisely explain why I shouldn't value this? I truly don't understand your assertions in the context of what I'm doing with my subscription music service.

Is the problem that since I can find the same album (maybe?) on a file-sharing service, I'm not acting in my self-interest by paying for what I could get for free (and unencumbered by DRM)? I'd counter by saying I find the catalog, browsing, playing experience superior to file-sharing services. And if DRM on the content is the cheapest and most effective way to get someone offer that service, I'll accept the limitations.

As a consumer, I want someone to collect the catalog, index it well, and make it super simple to play the music I want. And I want to do that for tons of music while still paying one price per month. I don't understand how I can entice an outfit into doing that unless I pay them. And if others can use the same service without paying, I think the outfit generally won't get paid. Hence DRM helps me get catalog builders / distributors to do what I want.

Without DRM, how does your "economics of scarcity" jibber jabber get them to do what I want?

BTW, do you think HBO should be free too?

Don't misunderstand and take this to mean I love limitations on my media, tolerate rootkits, appreciate being treated like a criminal by my software, etc. Those who make DRM and those who use it are doing a rotten job most of the time. But I think I want them to make it better vs. wanting them to go out of business. Because they're making something I value.

John B is so short sighted

I'm shocked how short sighted John B is, he sounds like the RIAA/MPAA is shoving money in his pockets to spew bullshit.

DRM adds no value to a product. Music industries were needed for distribution, but with the internet, and small file size of music, along with broadband, music labels are no longer needed to distribute music. Any one can distribute music.

Music labels used to promote bands, but now bands get better promotion by going online and advertising to their target community. Go to punk sites if you are punk, country sites if you are country.

There are still some hurdles, such as the corruption of the radio industry and the labels controlling what gets played, meaning the same boring crap gets played over and over. But this too is changing.

The music labels are no longer needed. It can all be done on their own. And if a band truly wants good promotion, they would go get a loan if needed, or get private investment, and then spend the money on an actual advertising firm to get true advertisement.

Same is going to be true for movies, the movie industry is going to no longer be needed. Internet speeds will get faster, making movies will get easier with technology, private investors and banks will fund projects worthy of funding, and advertising firms will advertise it.

I look at how popular "This film is not yet rated" was even when the MPAA tried to block it and stop it from reaching the public.

Fact is it's a new world for media, the MPAA and RIAA have fought against it, and they losing badly. They will die off because they refuse to change with technology and adapt. The future has no need for companies that try to control the content, as there are enough out there to make sure that the control thrives without control.

Good bye RIAA and MPAA, you will not be missed. You were too old, too slow, and too stupid to survive in the 21st century.

I think they could really take some lessons from the porn industry.

By the way, releasing music for free, as promotional for where artists make their real money, in concerts, is the most brilliant move. Too bad that just means cutting out the labels, because they just aren't needed.

Re: Re: Sorry

Mike, I have to disagree with you here.

There are a lot of people who wouldn't pay full price for a song if they only wanted to listen once. Downloading songs for free is illegal, so a person who only wanted to hear a song once would be out of luck without DRM. That economic transaction WOULD NEVER TAKE PLACE. Think of it as the part below the equilibrium point of the demand/supply curves.

With DRM, people argue, you could create a song lock to only be played once, for much cheaper than unlocked songs. That would enable these transactions to take place, thus CREATING VALUE. This is a valid argument.

However, given reality, where people can download songs for free, this argument rendered invalid.

Emmy Noether on DRM

Do you actually know any economics?

Are you familiar with the distinction between public goods and private goods? Public goods are defined as non-rival and non-exclusive. That is, if you give it to someone, you still have it and can give it to someone else; and, if you give it to someone, everyone else can get it. Classic examples are clean air and national defense. Content without DRM is a new example of a public good.

Private goods are conventional physical goods which have opposite properties.

The reason for the distinction is that public goods are under-produced in a free market. That's why government has to intervene to make sure they get produced. Private companies do not provide clean air, because they can't limit it to their customers. Public goods are terribly inefficient, economically.

In contrast, private goods are optimally produced by the market. The level of production automatically adjusts to satisfy social needs while reflecting inherent costs.

DRM is fundamentally an attempt to be able to turn content from a public good into a private good. It will act more like a pencil, something that can be controlled and limited and charged for, than lie clean air, which everyone gets automatically without paying for it. And this is a GOOD THING. It means that the levels of production will be optimal even without government regulation.

Without workable DRM, we will have too little content produced, and the only solution will be some kind of government action, lie a tax on downloads which gets fed back to content creators. That's the direction we are going to end up in if DRM can't be made to work. It's no different from pollution control, public safety or other public goods. Sooner or later the government will take over responsibility for them, if the market can't find a way to privatize them and ensure that the creators and distributors reap the profits from what they create.

This is a stupid argument!

So because I lock the front door to my house, somehow I am shrinking the economic pie for furniture, electronics, appliances, jewlery etc.. This is the dumbest argument I have ever heard. Locking my door does not create a new business model, but it sure expands and extends the existing legitimate business models. In fact, by locking my door and adding a security monitoring system, a whole new bsuiness is born. You are foolish to think that just because it is on the internet is shold be free. This is more the attititude of a communist. The collective good. Non-sense. Dribble. Pablum.

Oh Come On!

More than a few years ago, content could not be copied efficiently. I could get a copy of a tape from a friend, but I couldn't get 1,000 without significant effort. The fact that I could copy something was pretty much ignored because it was impossible to scale up. Nobody really "respected" copyright in any way, people were just practical.

Today, there still is no "respect". DRM is an attempt to enforce respect for copyright. It fails in this. For the most part, it is ignored, bypassed and broken. The poster saying DRM is an attempt to take music from the public domain and make it private is correct - without effective DRM music will be shared and not paid for because most people aren't going to pay for it.

Like shareware, perhaps 5% of the people will pay for music. The rest will just listen. As they are doing today. At this level of compensation there is no "promotion" or radio air play. We are looking at a significant change in a large segment of the Western economy because of this. Oh, the artists will find other ways to make money. Not as much, probably, but they won't starve. But the millions of jobs that today are in music-related industries (distribution, trade publications, radio, stores, etc.) are going to be gone.

It doesn't have much to do with DRM anymore. DRM is being walked around by the people that it is designed to affect, and it is a short stroll. DRM discussions assume there is an alternative yet to be discovered. It has been discovered, and it is called P2P sharing and advertising supported web sites hosted in foreign countries. You get it for free, today. I don't see putting the genie back in the bottle has a chance.

If you work for a business that derives revenue from music, I'd be looking for a new line of work. Soon. The change is coming.

It's all about the benjamins

Something to keep in mind when thinking of how DRM affects the artists. Most artists, not all, but 99%, do not make much money at all off the album sales. Instead they get their paydirt from their own tours. DRM isn’t really affecting the artists, it’s affecting the labels and the RIAA. Why do so many small independent labels support DRM free content? It’s all about money, we all know that, and the more control they can exercise over their product the more money they think they will have. The reality of DRM dieing any time soon is slim to none in the music industry. About as likely as Microsoft open sourcing Vista.

Agreed

Agreed. DRM works. It protects content. Circumventing it is just too easy. But remember, circumventing it is ILLEGAL.

Yes, Artists get most of their money from concerts. But, recording fees (which are very high) are paid for by the labels. Without the labels, there would be much fewer artists out there, just the same as if there were no venture capital industry, there would be far fewer startups.

Labels take a chance on an artist and need to make their money back. Ok, they're evil and price-gouging, but that doesn't matter. Fact of the matter is that they serve a purpose.

Don't get me wrong; I don't like DRM as a consumer. But I recognize that it serves a purpose. Just because we share songs, and don't respect laws, doesn't mean that DRM is faulty.

Please understand that there are many good/valid arguments for keeping DRM around. Don't buy into the hype. Until the music industry finds a whole new way of monetizing music, DRM will be a reality.

Re:

I rent films that I would never consider buying. The drm in this case is social (and monetary) becuase I have to return the film. DRM could be used to create a rental product.

When you "rent" films the actual business model involved is that of a lending library. The way this works is to allow a scarce physical media to be used by many people. It's a requirement of this that you bring the book, tape, optical disk, etc back to the library within a certain period of time. So that someone else has the ability to use it. There is quite a deal of expense involved in running such a library, including deciding what stock to carry in the first place, ensuring it is sensibly arranged on the shelves, handling issues/returns, dealing with damaged media, chasing copies which arn't returned on time, etc.If instead of dealing with physical media libraries handled copies of computer stored "content" then things radically change. No need to decide how many copies of whatever to hold, no need to bother with the whole issue/return thing, no more problems with stock being stolen or defaced. Less actual need for physical libraries. Where you do have a physical library you'd have then selling writable (or R/W) optical disks and portable memory devices (for people who hadn't brought their own). With a choice between "self service" and having a librarian help you choose what to download.The idea of files which become unreadable after a certain period of time is rather pointless. If you are running out of storage space you either delete some files or buy more storage media.

Promotional music ... future

Many artists use music as a purely promotional purpose these days, which shows us something interesting: Artists realizing their real value as artists and not entertainers. An example I will use: http://www.generationtrance.com/
DJ Gt and Project c do promotional work with other artists who communicate on their website. They post all their music for download as well as play on DI.FM, internet radio.

Re: DRM good?

Why is there a need for Digital Rights Management? Why is it good? These are the same companies that got as big and powerful as they are in the age of tape recorders and mix tapes. I put every album I ever had on tape at some point, I gave some away, I made copies of others. I purchased music.

Getting rid of drm wont change a thing except it will open up the market for players. The idea that a record company can make you pay for nearly every instance you own of their song is b.s. If they want to make more money, "package, repackage, re-evaluate the costs." Add new mixes, make new versions.

Music IS non scarce, add value to the product, stop limiting its use. I can give away a book I have. I can give away music I have. I can make a copy and play it in my car. There is no stopping the sharing... but there can be a way to create more value. That or the simplest thing is, like every other institution, RIAA's companies will have to deal with less profit.

Re: Agreed

Recording fees are high because the record labels are free to set them. Artists are forced to use the record label's studio when they sign their contracts. It's an artificial monopoly. You can convert your basement to a recording studio for much less than the cost of a typical recording session.

As the article says, circumventable DRM only reduces value. It is just as illegal (and easy) to circumvent DRM as it is to pirate content.

However, I generally have to circumvent DRM to watch content on my media center computer or portable music player. Therefore, when I watch a DVD, I break the law.

If I couldn't circumvent the DRM, I'd have no incentive to pay for the content, except, perhaps, charity for the artists. Indeed, I waited until DeCSS was available until I purchased my first DVD.

I own an HDTV. If BluRay and HD-DVD players were free, and HD movies were half the price of DVD's, I would still buy DVD's. The cost of changing my habits to deal with the DRM outweighs the benefit of viewing the content.

I happen to use free (as in "freedom to modify") open source software for most things (I need it for work, am paid to develop it, and prefer it at home). Any modifiable DRM implementation would allow circumvention. Even if I didn't use Linux, current DRM is a nightmare for portable music players. Besides, DRM'ed content isn't guaranteed to play next year.

In all but a few rare cases, artists receive no value from DRM. They don't profit from album sales and DRM makes it harder for new fans to discover them.

A while ago, I mentioned charity. Much less than 10% of most CD sales go to the artist, while the rest goes to the RIAA. If it were legal, I'd send the money directly to the artist, and download a pirated copy instead. Given the hardware I own, listening to DRMed music is illegal. Since either route is criminal, I guess I'd have to let ethics guide me. That's bad news for the RIAA.

So, with apologies to Max: "Don't buy into the hype. Until the artists find a whole new way of monetizing music, abusive record labels will be a reality."

Re: Re: Re: Sorry

There are a lot of people who wouldn't pay full price for a song if they only wanted to listen once.

I doubt that there are that many people who only want to listen to a song once. I'm pretty comfortable stating categorically that the economic cost of the DRM needed outweighs any possible benefit of creating a single listen format.

The fundamental problem is that if you have such limited interest in a song that you only want to hear it once, wouldn't you be better off listening to a song that you like more and have already bought? Or simply not listening to music at all? If you won't pay a $1 for a song, will you pay $.50? $.25? $.10? At $.10, the DRM and payment (think $.20 for a visa transaction) overhead would kill any possible profit.

Re: Re: archaic thinking

No. That is a search and refinement problem, it has nothing whatsoever to do with DRM.

So, who pays for developing and maintaining it? That's where DRM comes in. It's a means of financing the necessary infrastructure. I know that sounds like the rationale for the old record labels, and there are some similarities in the logic. But what I am proposing is much closer to the peer-to-peer situation you espouse than I think you realize. Bandwidth and server hosting costs have gotten quite reasonable, but they are not as close to zero as you seem to think. But, to the extent there is competition in the market, which I think there is, these costs will work their way into the business model I am proposing.

This makes no sense at all. The cost of the bandwidth and hosting is completely independent of the content; it's the same per gigabyte whether the data being served is music, movies, or Knoppix. In addition, there's no cost to the original host site in any event if the content is shared peer-to-peer over a different network.

Let me clarify something. The system I am envisioning would not charge $1 per song, like iTunes, but probably closer to 10 cents per song, or whatever would cover the costs of establishing and maintaining the system.

Maintaining what system? The distribution system? In that case, remove the DRM and allow people to develop other distribution systems that are cheaper. If the bandwidth is really more expensive than most people think, the costs of peer to peer sharing will be high enough to compete with people selling unencumbered music off their websites. If it's as low as most of us think, then for-pay distribution systems won't be a viable business.
Evidently ISP's are able to make a profit at $20/month for essentially unlimited service (much of which is P2P traffic). If a typical song is a 3 MB Ogg or MP3, 10 cents would work out to $33/GB, and I don't think we're seeing retail bandwidth charges anything like that.

Let me ask you this: Which is more efficient, both in terms of IT resources and in terms of user and artists cost in terms of time: 3 million websites on 500,000 servers spread around the globe with no organized connection OR one or a handful of competing sites that actually help organize and track the stuff? Which do you think will have lower search and transaction costs? Now, which do you think is the most likely to be the dominant model?

If that is really the case, then a viable model might be to sell subscriptions to the search engine that matched musical tastes up with new music. If it really is the case that people would prefer to pay than to spend the time scouring the net, then there shouldn't really need to be any DRM, since even if people share their music out it's going to cost other people more to search the shared music themselves than to pay the search engine. Artists who aren't well known should be thrilled to receive this kind of exposure, because it would match them up with people really interested in their music (even though they don't know it yet!).

Re: Re: Re: Sorry

Mike, I have to disagree with you here.

There are a lot of people who wouldn't pay full price for a song if they only wanted to listen once. Downloading songs for free is illegal, so a person who only wanted to hear a song once would be out of luck without DRM. That economic transaction WOULD NEVER TAKE PLACE. Think of it as the part below the equilibrium point of the demand/supply curves.

With DRM, people argue, you could create a song lock to only be played once, for much cheaper than unlocked songs. That would enable these transactions to take place, thus CREATING VALUE. This is a valid argument.

However, given reality, where people can download songs for free, this argument rendered invalid.

Exactly -- ignoring reality. There's also the rather iffy assumption that people will be at their computers and suddenly decide "oh, I'd really like to listen to Street Fightin' Man, but just once, I'm not going to be interested in listening to it again". Most pop music is either something someone's going to want to listen to over and over again without having to keep thinking "do I want to pay for this particular song" or something that's simply too wretched to contemplate having heard in the first place.

For movies this kind of rental model works (at least for now), but movies are much less convenient to download and store, and a lot of people really don't seem to be interested in watching a particular movie more than once. Maybe it would work for at least certain kinds of classical music; I could well see someone deciding that they'd like to listen to Havergal Brian's Gothic symphony once, but more mainstream music is another matter (the 2 CD set for the Gothic costs $30, and yes, I've listened to it exactly once. But a piece that has only ever been performed maybe half a dozen times, and which requires about 1000 musicians, and which doesn't have mass market appeal is going to be somewhat a labor of love to produce, anyway).

The only two ways to put a black market out of business are absolute tyranny (which the record companies seem to favor) or co-opting it. For that mattery, tyranny doesn't seem to work too well, either.

Imminent collapse of the music industry predicted

I'm still amused by the posts by people like John B. DRM-free digital music has been available for >17 years on CDs. The ability to rip the music and distribute it digitally has been available for > 10 years. Clearly, since the cost of copyright violating distribution is so low, the music industry has already economically collapsed.

Or maybe, as the evidence clearly demonstrates, people are not the criminal sociopaths that the Harvard Business Review explains that corporations are (especially when acting as the economist's idealized rational economic agents).

The myth that "not having to pay" equals "no one will pay" is false. It is repeatedly demonstrated to be false by economists when engaging is socio-/psychological experimentation, much to their near-sighted astonishment. People are not rational economic agents. People do no value money monotonically (much less linearly or logarithmically, as various models predict they should). People do not evaluate risk rationally.

In short, people do not enact the self-destructive behaviour that economic theory predicts. Since the theory doesn't match the facts, the conclusions are bogus. One might as well latch onto the conclusions derived from a theory of the aether or of phlogiston.

Now, in a market occupied by rational economic agents (corporations being a much closer approximation in real life), one can correctly predict the collapse of the market under a free distribution model. So, don't sell free music to corporations. Problem solved.

it doesn't matter.

As long as there are people who buy CD's and rip them to their computers/iPods, there will be illegally distributed copies of all kinds of media floating around because these are the same people who use torrents and other P2P's such as Limewire. I would know. I'm one of them.

Even though the dispute over DRM is important, it is ultimately irrelevant as long as CD's and DVD's are not protected.

Um. No. It's not at all. A car is scarce. If I take your car, you no longer have it. If I copy your song, you still have it. That's the entire root of this discussion.

So what? Ok, invest two years of your life writing a book. Now I come and copy it, Hey, you still have it!. Be happy. Life's good. Next time your kid comes asking why you can't buy him X or your wife asks for Y, tell them : "I'm an artist - I can't waste my time earning money. I have an inner desire for writing for free".

No matter how you twist it, the fact is that many artists are financially motivated. Yes, there are some who aren't (or at least say so, which is doubtful at best). About quality - Shit or not - well, that's your personal oppinion which cannot be used to prove anything. Your shit is someone else's celestial music, and vice versa. The fact that people go to Britney Spears' concerts and pay for her CDs clearly show that it's not shit for them.

But I propose you a challenge. Let's say I'm as talented as [insert your favourite director here]. No one knows me, and I want to make a movie. Let's assume that we both know 100% for sure people will like this movie. Combined production costs are $10M. Ok, now tell me - what do I do? (specifics, please, no generic reasoning). Where do I get this money from?

Re: Re: Re: Re: Sorry

The only two ways to put a black market out of business are absolute tyranny (which the record companies seem to favor) or co-opting it.

Or to deplete it. No supply = no goods = no black market. If I were an artist and knew that investing 4 months of my life in an album would yield me $1000 because of black market issues, I'd probably think I'd rather work as a plumber and earn $4000. Just as consumers want to maximize the received value per monetary unit, so producers want to maximize the ROI, and time is as much of an investment as money.

Re:

But I propose you a challenge. Let's say I'm as talented as [insert your favourite director here]. No one knows me, and I want to make a movie. Let's assume that we both know 100% for sure people will like this movie. Combined production costs are $10M. Ok, now tell me - what do I do? (specifics, please, no generic reasoning). Where do I get this money from?

Re: Re:

Knock the production costs down.

That's a nonanswer. The production costs are what are. Or else, explain to me how do you go to a computer shop and "knock the cost of the computer down". After all computers are needed to make digital effects. Costumes are needed for the actors. Sets and models are needed. Cars are crashed. Feel free to explain to me how do I "knock these costs down". I might as well start applying your method in my own life.

Refutation

I refute it thus! ebay.

After a scan of your article, it appears you are not considering the considerable market activity in collectibles. Here is a market based primarily on false scarcity. For an easy example, baseball cards. By creating a false scarcity trading is encouraged at every level. The cards themselves have little inherent value, either economic or entertainment. In fact their origin is as a freebie for buying the gum. The actual economic activity and all of the enjoyment is in the collecting, trading, viewing, etc. of an artificially scarce product.

Now some might say that the original can be labeled or watermarked or somehow identified as special and it's scarcity will remain, but if the market is flooded, even with poor copies, the scarcity is elusive and the after-market of collecting can not survive.

For examples of this business model, I refer you to Topps, Swatch, Hamilton Mint, Lladro, and most modern artists.
-jcp-

DRM is not a value add, but simply loss protection

"Successful new business models are about creating those non-scarce goods and helping them increase value."

The article presents reasonable ideas, then suddenly jumps upon DRM in a non sequitur that sounds like the Chewbacca Defense.

DRM isn't a value add process, it's loss prevention. Inventory tags on retail goods and the locks on the doors of businesses don't "add value" or create goods or new business models, they protect goods from being taken without payment. DRM does the same.

DRM is like taking the recipes you talk about and making them difficult to remove from your kitchen. Users have to come to your kitchen to buy your finished goods, enabling you to profit from the recipe ideas you created, and encouraging you to develop new recipes to profit further.

In the digital realm, the scarcity that creates value in marketed goods is not the CD or the media files, but the intelligence and artistic talent that created the work. If you allow anyone to take it and copy it, your goods become valueless because of the near infinite supply of unauthorized duplication.

Not Just DRM

Loss protection for whom?

DRM that retained IP control for the artist is what you describe in your example. In the music world, DRM retains IP control for the truck driver. I.e., DRM supports control by the middle man. In a world where baked goods can be copied effortlessly and transmitted effortlessly, DRM only seems like a good idea for the truck driver; the baker and the consumer both perceive a reduction in value -- the baker because now the consumer can no longer engage in viral marketing by sharing (plenty of examples in both the music and print worlds where online "free as in freedom" access to the back catalog has increased current sales) and the consumer because now the *truck driver* gets to dictate where and when the consumer may eat.

The role of the middleman is increasingly irrelevant. An efficient market would already have eliminated most of the cost burden created by the irrelevant portions of the labels's costs. DRM is an attempt to enshrine this inefficiency. (... and also ensures that no work ever enters the public domain. Why should the DRM expire or be circumventable when the copyright expires?)

Bankrolling without middelmen

Method 1) Use the method that was popular from before the Enlightenment until now in Eurpoe. Find a rich benefactor to bankroll your art. Worked for Bach. Worked for Mozart (more or less).

Method 2) Use the method that replaced that -- used up until the present, which I will call the "Evil Dead" method, since that movie used this method. Find private investors. Convince them you'll make money on your movie.

Method 3) Used for the past several hundred years. Start a corporation for the purpose of making your movie. IPO the company. Thereby securing public investing. Go make your movie.

Method 4) Practiced for the past few hundred years, especially viable now. We'll call this "The Call of Cthulhu" method, because it was used to make that film. See http://www.cthulhulives.org/cocmovie/ . It amounts to: start an NPO, accept a lot of free help.

Method 5) Since you mentioned computerized CG, the movie you have in mind is suitable for the "SETI@Home" method. All the CG is free since you get it from people who donate spare cycles to your project, solely for a credit, telling their friends all about it, and maybe getting a free copy when it's done. (For more examples, see Folding@Home, distributed.net, BOINC, et al.)

The cost of Production *can* be reduced. $10M is a typical "management" compromise between dollars, hands, and time. If you can spend longer getting it out the door, it can cost vastly less. See: "Star Trek" New Voyages" ( http://www.newvoyages.com/ ) for an example.

DRM == Artificial Scarcity

It's quite simple really. Distribution is now free. Business models based on the scarcity of physical goods, like CDs, are dead. DRM is a desperate attempt to get back control of the distribution channel by creating an artificial scarcity. Consumers will reject DRM and it will continue to fail.

This does not mean that new business models can't be created, but the old ones have most definitively run their course.

Interesting argument, but completely wrong

By the same argument as this article, copyright enforcement in general diminishes value. That is pretty ignorant. Indeed, prohibiting people from duplicating DVDs and books en-masse, and posting commercial software on web sites, are all manifestations of "rights management." DRM is simply the enforcement of that same rule that doesn't allow you to photocopy and distribute books. Because digital content is so easily copied and distributed, the copyright protection needs to match. No longer does a simple copyright notice, but some sort of barrier is necessary.

Without DRM, the production of content and the surrounding economies will collapse.

We would all like all of our content and software for free. Unfortunately, that is an absurd goal.

Re: Not so fast/whyNot

Use the method that was popular from before the Enlightenment until now in Eurpoe. Find a rich benefactor to bankroll your art. Worked for Bach. Worked for Mozart (more or less).
Except if you consider the 'small' nuance that you can immediately see and judge what Mozart does before you patronize him, but until you have spent a good quantity of your money you can't see the quality of a movie. As an example, the average cost of an 1h pilot episode for a series is in the *millions* range. But hey, if this system goes as back as the middle ages, I'm sure there are plenty of $10M movies from unknown moviemakers that have benefited from it. Feel free to illustrate me on specific examples.

Method 2) Use the method that replaced that -- used up until the present, which I will call the "Evil Dead" method, since that movie used this method. Find private investors. Convince them you'll make money on your movie.
Except that you are definitely not going to make money. After all, once the movie is created, marginal cost is zero. Anyone can get it for free. Oh, but you still have it, so be don't worry. Life's good. Abundance. Where can I download a free legal copy of Evil Deeds, by the way?

Used for the past several hundred years. Start a corporation for the purpose of making your movie. IPO the company. Thereby securing public investing. Go make your movie.
Same as above. Do you buy shares from companies that do not plan to make money, and whom you do not know? Then I don't know why you expect others to do. By the way, I have an idea for a great movie that won't make any money. Feel free to send me your dollars. Also, feel free to point me examples of freely downloadable movies made this way. I guess there should be lot of them, if the method is so popular and successful and has such a long history.

It amounts to: start an NPO, accept a lot of free help.
In 2005 , about 530 new movies were produced. marketed and distributed in the US, at an average cost of $96M per movie. That makes 50 billion dollars in costs. The total charitable donations in the US the same year (which was the year of the asian tsunami donations, by the way) were 250 billion. Good luck achieving a 20% increase in charitable donations for anything, much less movie making. Or are you going to scale down production of movies? We'll have... how many? 10 ,20 movies per year?

The cost of Production *can* be reduced. $10M is a typical "management"
Actually, even if you remove marketing and distributionc osts, the average movie costs six times that amount. Today, and that's a fact. Just because you want or think that costs can be reduced to less than 1/6th of their present value doesn't make it so. But if your plan is so good, please do talk to movie companies so that they implement it. After all, I doubt they would have any objections in cutting their costs in 5/6ths, especially if you offer your idea for free (because its marginal cost of thinking of it again is 0). After you are done, I'd be glad to examine your results (as opposed to your whishful thinking)

Since you mentioned computerized CG, the movie you have in mind is suitable for the "SETI@Home" method. All the CG is free

Sure. Come work for me, for free, if you don't mind. If you don't work for free, I don't know why you expect others (modellers, artists, animators) to do it. CG is not only *rendering*. Or do you believe models and animations appear out ouf thin air? And Seti@Home has quite a bit of server-side iron and bandwidth which is not free, either. Ironically, Paramount Pictures donated $100,000 to Seti@Home for the project to start

Yeah,well : let's see. Its currently March 2007. The project started at least in January 2006 (there are archived news from that month). So in 15 months they have managed to get 900+ angels @ 50 dollars each = $40.000 WOW! Not bad for a target of $2,500,000.
May I expect this movie to be released in the next five years? Is this going to be production rate of movies in your economic model?

Re: Re: Re: Not so fast

So no one can or does buy DRM free music? I only pay for music that's DRM free, and that way I know I'm getting value. The positive in the point you're arguing isn't related to DRM at all, it's related to music that's not free.

Re: Re: Re:

That's a nonanswer. The production costs are what are. Or else, explain to me how do you go to a computer shop and "knock the cost of the computer down". After all computers are needed to make digital effects. Costumes are needed for the actors. Sets and models are needed. Cars are crashed. Feel free to explain to me how do I "knock these costs down". I might as well start applying your method in my own life.

Your scenario is actually farfetched in its own right -- even with perfect "protection" you really have no way of knowing in advance whether a movie will be profitable.

As far as knocking costs down, it's all in the details, just as in real life. Hire less expensive actors or convince them to accept less upfront in exchange for more of the take. Find cheaper costume suppliers. Hold down on the special effects. Keep looking for ways to economize. The production costs are what you choose to spend on; they aren't "what they are". The Blair Witch Project was a successful movie on a tight budget -- what was it, something less than $100K, right?

How do I knock the costs of computers down? Take a look at what Dell, for example, does -- use cheaper components, optimize the manufacturing process, etc.

Flawed reasoning

The analogy is flawed. The scarce things of value in your example are the raw ingredients and the final product - the cake, if you will. In music and movies, the scarce things of value is high quality performances.

Absent DRM, consumers can only obtain the scarce quality performance by purchasing another (less scarce) resource - some physical media, or limited access to an actual performance. All of these forms come with "limits". The ticket to the live performance usually prohibits recording, or your ability to record is "low quality", relatively speaking. The CD or DVD requires a player of some sort and physical space to store the media.

DRM merely defines a different way (a recipe) to enjoy the scarce performance.

It is adding a (non-scarce, economically speaking) resource - DRM, an idea - to provide another means for consumers to obtain access to the (scarce) performance. It is baking the raw ingredients of value (the one time, studio performance, well mixed and engineered) using a different recipe. DRM is expanding the pie, not shrinking it. I don't need additional storage space for physical media. I don't need to pay for 12 tracks to enjoy 1.

I still have those choices, mind you, as I also have the choice to limit my purchases to those performers who do not invoke copyright protection for their work. So in no way does DRM limit consumer choice, it merely provides an additional choice that has a different value proposition for both producers and consumers. Some people obviously like it, others clearly do not. Until too few people do, DRM will remain a viable, successful business model. Just like the telegraph.

Your scenario is actually farfetched in its own right -- even with perfect "protection" you really have no way of knowing in advance whether a movie will be profitable
Of course you don't. But I was trying to be benevolent towards Mike by removing subjective issues like quality and such. If a 100% guaranteed movie can't get $10M, how on earth will a real movie get them?

Also, I never spoke about being profitable. I only said that people "will like it". How do you plan being profitable? After you make your movie, your marginal cost is zero. Anyone can get a copy for free (and you keep your copy, yes). So, how do you plan being profitable (This, assuming that you get the money to make the movie in the first place, which has still not been answered).

Hire less expensive actors or convince them to accept less upfront in exchange for more of the take. Find cheaper costume suppliers. Hold down on the special effects. Keep looking for ways to economize.

Excuse me, but that's a different movie. My movie comes with these costumes, that cost X, these actors that cost Y, and special effects that require hardware Z and that's why I'm able to say it will be likable. Or are you saying that people don't care about what appears in a movie? They don't care if instead of Tom Cruise you pick JohnUnknown? If instead of state-of-the-art effects you use soft cork decors built by inexperienced art students on their free time?

The Blair Witch Project was a successful movie on a tight budget -- what was it, something less than $100K, right?
So what? Nobody is saying that I cannot make a YouTube video for $5 and become a millionaire because I do something funny or stupid for the first time ever. We are speaking about sustainable business models for all artists. Doing a stupid video is not "sustainable", because my next video doing the same thing or something else will probably not earn me a penny. Blair Witch 2 had many times the initial budget and was a bummer. Obviously curiosity and novelty played a factor in the initial success.

Oh, and by the way, current movie production average is $60 Million. I'm only asking for $10 Million. I've already some magic cost reduction and am capable of making a 100% guaranteed movie for 1/6th of the real-world cost. Even with this utopic setup, I'm not getting any real answer about where this money is going to come from if I plan letting people get the movie for free.

How do I knock the costs of computers down? Take a look at what Dell, for example, does -- use cheaper components, optimize the manufacturing process, etc.
Again, generic nonanswers and hand-waiving. I'm not speaking about Dell, I'm speaking about movie making. How do I, the movie maker and not the computer builder, drive down my computer costs. By picking a cheaper computer? Wow! That's surely something that hasn't occurred to movie industry executives. For some arcane reasons surely they are picking the most expensive computers available, just to keep production costs high.

I'll be more specific.
Do you have some concrete cost reduction idea that studios aren't currently using?

How are people defining DRM? Is it a "sale" or a "

Whever I see a thread talking about DRM I have to ask what definition they are using: the marketing term "Digital Rights Management", the more correct "Digital Restrictions Management", or something else?

I often use it as an acronym for "Dishonest Relationship Misinformation". I use it to mean the abuse of a technical measure to lock down hardware which the person holding the keys does not own, and the encoding of content such that it is only interoperable with these locked down devices.

I have no problem with laws which protect technologies which lock down devices where the keys are held by the owner of the device, or even with the encoding of content such that it can only be decoded by these types of devices. What I am opposed to is calling a relationship a purchase that is really a "rental" (IE: the person receiving the content doesn't own the hardware -- they are "renting" it from someone else).

Once we are honest about what the relationship is, we can then expand current consumer protection laws to protect those renting from abuses of their privacy and other rights. But I am fundamentally opposed to being dishonest about the relationship we are discussing, and companies should not be allowed to claim they are "selling" something that is locked down where the owner is not given all keys.

I believe that "DRM", as I have defined it, should not only not be legally protected -- it should be outlawed. If people want to create new rental-based business models, then that and other situations where the owner of a device wants to lock down their own devices should be legally protected.

Re: Re: Re: Sorry

Think of it as the part below the equilibrium point of the demand/supply curves.

There is no part below the equilibrium point of the supply/demand curve. The supply is infinite, therefore, it meets the demand curve at zero. There is no space beneath there.

With DRM, people argue, you could create a song lock to only be played once, for much cheaper than unlocked songs. That would enable these transactions to take place, thus CREATING VALUE. This is a valid argument.

No, you are charging higher than equilibrium, which is taking away value.

However, given reality, where people can download songs for free, this argument rendered invalid.

Re: Do you actually know any economics?

Are you familiar with the distinction between public goods and private goods?

Very much so. I'm also aware that many economists are starting to question earlier assumptions about public goods. Also, you really should look at the difference between positive and negative externalities... because throughout this post you treat them as if they're the same, when they're absolutely not.

Public goods are terribly inefficient, economically.

That is not necessarily true. It all depends on the incentive structure that is set up. Also, you make a very bad assumption here, that the government intervention can't make things worse -- and there are plenty of examples wehre that is true.

Part of the reason why economists are starting to rethink the distinction between public and private goods is that they're finally recognizing how bundles play a role in the market -- and the fact that non-scarce goods can be "bundled" in some way with scarce goods to keep the market efficient, without government intervention.

DRM is fundamentally an attempt to be able to turn content from a public good into a private good. It will act more like a pencil, something that can be controlled and limited and charged for, than lie clean air, which everyone gets automatically without paying for it. And this is a GOOD THING. It means that the levels of production will be optimal even without government regulation.

No. It's not a good thing. It's limiting an infinite resource -- which is bad economically. Content is a resource that can be used to create many more resources. Trying to artificially limit it is reducing your pool of resources unnecessarily, which is BAD.

Without workable DRM, we will have too little content produced, and the only solution will be some kind of government action, lie a tax on downloads which gets fed back to content creators.

You make a huge assumption here that is easily provably false. Almost every CD sold today has no DRM. So, uh, yeah, it hasn't stopped production there.

You are thinking way too narrowly about business models, and assuming that it's the music, rather than complementary products that need to be sold. If you focus on selling the complementary products, and using the music as a promotional resource, your outlook will change quite a bit.

It's no different from pollution control, public safety or other public goods.

Again, I suggest you look at the difference between positive and negative externalities.

Sooner or later the government will take over responsibility for them, if the market can't find a way to privatize them and ensure that the creators and distributors reap the profits from what they create.

Only if the government can't understand how a market with infinite resources works. I agree that may be a problem, but they don't need to get involved. The market will take care of the situation without a problem.

Re: This is a stupid argument!

So because I lock the front door to my house, somehow I am shrinking the economic pie for furniture, electronics, appliances, jewlery etc..

No. Your furniture, electronics, appliances, etc are scarce goods. If someone takes them, you no longer do. The whole point here is in looking at non-scarce goods. So, the rest of your comment is meaningless.

You are foolish to think that just because it is on the internet is shold be free. This is more the attititude of a communist. The collective good. Non-sense. Dribble. Pablum.

This always strikes me as the most amusing argument. Because I'm asking to TAKE AWAY artificial government controls and subsidies, that's communist? No, my argument is very much capitalist. It's saying let's stop having protectionist government policies and let the free market do its thing.

Re: Oh Come On!

Today, there still is no "respect". DRM is an attempt to enforce respect for copyright.

I disagree. DRM is an attempt not for respect of copyright, but to encode the business model of physical distribution on virtual distribution.

At this level of compensation there is no "promotion" or radio air play. We are looking at a significant change in a large segment of the Western economy because of this. Oh, the artists will find other ways to make money. Not as much, probably, but they won't starve. But the millions of jobs that today are in music-related industries (distribution, trade publications, radio, stores, etc.) are going to be gone.

I disagree tremendously. Look at the history of advancement in content. Whenever new technology has made the distribution easier, the overall industry has GROWN, not shrunk. The same thing will be true here. From the player piano, to the radio, to television to the VCR to the internet and beyond. Each new technology increases the size of the market, by adding MORE value. DRM takes away that value. Getting rid of it will let the market expand and there will plenty of ways to capture even more value than before.

Re:

So what? Ok, invest two years of your life writing a book. Now I come and copy it, Hey, you still have it!. Be happy. Life's good. Next time your kid comes asking why you can't buy him X or your wife asks for Y, tell them : "I'm an artist - I can't waste my time earning money. I have an inner desire for writing for free".

Alexander, you make some very very flawed assumptions there. I like how you assume that anyone who writes something will be broke if they give it away for free... yet you are reading this series of articles that are all given away for free.

And, you know what, even though I'm giving them away for free, I'm making quite a bit of money from doing so. Why? Because it helps advertise the type of understanding we have of this market, and it helps get us more business. There's value in using it as a promotional material. Should this ever turn into a book, I'd feel the same way about it.

As people have said, book authors are a lot more worried about obscurity than piracy. If people want to pirate a book, then that's great. It should only lead to more opportunities for the author to become known and that opens up many more opportunities to make money.

No matter how you twist it, the fact is that many artists are financially motivated.

I don't deny that. What I do take issue with is your false assumption that giving away content means you cannot make money. You just make it somewhere else.

But I propose you a challenge. Let's say I'm as talented as [insert your favourite director here]. No one knows me, and I want to make a movie. Let's assume that we both know 100% for sure people will like this movie. Combined production costs are $10M. Ok, now tell me - what do I do? (specifics, please, no generic reasoning). Where do I get this money from?

Sure, that one's easy. You have many, many options. I'll describe one, but if that's not enough, I can come up with plenty more. The first would be to make a short, cheap movie demonstrating some of your skills. These days, the good news is that it's incredibly cheap to make basic movies -- so you can easily do that. I'd then suggest you give it away and promote the hell out of it on YouTube and such, which should help get you some attention, and hopefully someone willing to finance that $10 million. Based on what you said that we absolutely know that people will like the movie, then it should be a no brainer that you could convince someone to pony up the $10 million investment.

Re: Re: Re: Re: Re: Sorry

Or to deplete it. No supply = no goods = no black market. If I were an artist and knew that investing 4 months of my life in an album would yield me $1000 because of black market issues, I'd probably think I'd rather work as a plumber and earn $4000. Just as consumers want to maximize the received value per monetary unit, so producers want to maximize the ROI, and time is as much of an investment as money.

Right, but you've set up an artificially false scenario. What if the real scenario is more like this:

Option 1:
Become a musician, play shitty local dive bars and hope and pray that some record label discovers me and signs me to a fat contract. Expected return: very little.

Option 2:
Use cheap production tools to create an album, promote the hell out of it online, then be able to sell out stadiums. Expected return: a lot.

Suddenly the idea of becoming a plumber isn't so enticing. The point is that if you learn how to leverage free distribution, you can make a hell of a lot MORE money, not less.

Re: DRM is not a value add, but simply loss protec

DRM isn't a value add process, it's loss prevention. Inventory tags on retail goods and the locks on the doors of businesses don't "add value" or create goods or new business models, they protect goods from being taken without payment. DRM does the same.

Right, but the entertainment industry and the DRM industry insist that DRM does add value and does introduce new business models. That's the point the article was refuting.

DRM is like taking the recipes you talk about and making them difficult to remove from your kitchen. Users have to come to your kitchen to buy your finished goods, enabling you to profit from the recipe ideas you created, and encouraging you to develop new recipes to profit further.

But that's really, really shortsighted, because you've "limited" your market (in the same way that DRM limits a market). So, if only people who can come to your kitchen can experience your recipes, then you have a much smaller pie. If you release the recipes and people realize what a great cook you are, then you can suddenly get worldwide attention for your recipes, and people will want to go to your restaurants that you open everywhere. The recipes become an advertisement and a promotion for what you can do, and your name and presence have value that let you increase the market size.

In the digital realm, the scarcity that creates value in marketed goods is not the CD or the media files, but the intelligence and artistic talent that created the work. If you allow anyone to take it and copy it, your goods become valueless because of the near infinite supply of unauthorized duplication.

Do not claim that infinite supply means it's valueless. I assume that you value both air and water, yet both have near infinite supply. Value and price are two separate things. Do not confuse them.

Re: Interesting argument, but completely wrong

By the same argument as this article, copyright enforcement in general diminishes value. That is pretty ignorant.

Why is it ignorant? There's increasing evidence that it's true.

Indeed, prohibiting people from duplicating DVDs and books en-masse, and posting commercial software on web sites, are all manifestations of "rights management." DRM is simply the enforcement of that same rule that doesn't allow you to photocopy and distribute books. Because digital content is so easily copied and distributed, the copyright protection needs to match. No longer does a simple copyright notice, but some sort of barrier is necessary.

Why is it necessary?

Without DRM, the production of content and the surrounding economies will collapse.

That's an assumption that's not supported by the data. The 9/11 Commission report was released without a copyright, and yet the publisher who got the original rights for it made a lot more money than any copycat. Why? Because their name and being first gave them additional value that let them convince more people to buy it from them.

Books of Skakespearean plays continue to sell well.

And, if you're worried about the creator of the content, think again. Copyright can often make the artist rest on his or her laurels rather than continuing to create. Verdi created a lot more content when there were no copyright laws, because to keep making money he had to keep producing content. Once copyright was in place, he could rest on his laurels and DECREASE production of content.

Re:

Except if you consider the 'small' nuance that you can immediately see and judge what Mozart does before you patronize him, but until you have spent a good quantity of your money you can't see the quality of a movie. As an example, the average cost of an 1h pilot episode for a series is in the *millions* range. But hey, if this system goes as back as the middle ages, I'm sure there are plenty of $10M movies from unknown moviemakers that have benefited from it. Feel free to illustrate me on specific examples.

Alexander, arguing "cost" is very, very wrong. Look at some of the movies people have been able to make recently on almost no budget. If you can display your talents, you can do so cheaply for someone to recognize what you can do.

Except that you are definitely not going to make money. After all, once the movie is created, marginal cost is zero. Anyone can get it for free. Oh, but you still have it, so be don't worry. Life's good. Abundance. Where can I download a free legal copy of Evil Deeds, by the way?

Again, you are misunderstanding what you're selling. Sell people the experience of seeing the movie. They want to see it on the big screen in comfy seats. Or, you start to bundle it with other options. Sure, let them download it for free, but if they come to the theater, give them a discounted ticket on the next movie you make. Or perhaps give them a special DVD with extras and behind the scenes footage. Or give them the chance to be an extra in your next movie. Basically, give them incentives for going and PAYING to see your movie.

In 2005 , about 530 new movies were produced. marketed and distributed in the US, at an average cost of $96M per movie. That makes 50 billion dollars in costs.

Again, you are focused on the costs, which is the wrong thing. Technology and Moore's Law have reduced the cost of production tremendously, and it's only going to keep decreasing. We've pointed to numerous examples of that.

Second, the largest single cost of making movies these days is the star salaries. However, a recent study showed that this is actually quite inefficient, as the star's power in drawing audiences does not correlate. Therefore, the real problem is that movie makers are PAYING TOO MUCH. So to argue cost, is missing the point. The market can be much more efficient if the producers understood what was going on. That would make making movies much more affordable, while learning how to use content for promotional purposes would open up plenty of new opportunities to make money.

Re: Flawed reasoning

The analogy is flawed. The scarce things of value in your example are the raw ingredients and the final product - the cake, if you will. In music and movies, the scarce things of value is high quality performances.

No, that's where your argument is flawed. It's in thinking that the content is the final product, rather than an ingredient in the product.

In the last post in this series I discussed exactly that. People aren't buying the movie or the music. They're buying the entertainment "experience" or the "convenience" of a CD. In other words, the non-scarce goods are always the promotional vehicle driving the sale of scarce goods.

DRM merely defines a different way (a recipe) to enjoy the scarce performance.

No. The difference is that DRM is creating ARTIFICIAL rather than actual scarcity, and people implicitly realize this and feel cheated.

Re:

My movie comes with these costumes, that cost X, these actors that cost Y, and special effects that require hardware Z and that's why I'm able to say it will be likable.

Alexander, I'm afraid you've defined yourself into a corner.

That's like saying, I want to design the best car ever, but the costs of production are set in stone and it's going to cost me a million dollars to make. Now tell me how to make that money back?

And people will say "that's dumb. you can make a care for cheaper, just learn to outsource a part of it and use an already built factory, etc. etc. etc." And that's a reasonable point.

And your argument then is: "No. I need to do it this way."

And then the answer is, if that's the case, well, you're screwed. The point is you DON'T NEED TO DO IT THAT WAY. That's all we're saying. If you want to keep doing it the old way, that's your loss. There were makers of horse drawn carraiges who wanted to keep doing things the old way too once the automobile came along, and they went out of business.

The point is that you learn to adapt with the market. People here are telling you to adapt and you're basically stomping your foot and saying, NO! I don't want to adapt! That's fine, but then you go out of business.

Make people actually *want* to buy it!

Hire less expensive actors or convince them to accept less upfront in exchange for more of the take. Find cheaper costume suppliers. Hold down on the special effects. Keep looking for ways to economize.

Excuse me, but that's a different movie. My movie comes with these costumes, that cost X, these actors that cost Y, and special effects that require hardware Z and that's why I'm able to say it will be likable. Or are you saying that people don't care about what appears in a movie? They don't care if instead of Tom Cruise you pick JohnUnknown? If instead of state-of-the-art effects you use soft cork decors built by inexperienced art students on their free time?

Either find that $1E+07 somewhere, or give up on it, or be creative and find ways to knock that price down or to make people actually want to buy your stuff, but don't ask the law to protect your dream.

Try this: everyone who buys a copy of the movie from you in the first two years gets entered into a lottery for an all expense paid vacation, where they get to meet the stars of the movie and maybe even be an extra in the next movie. Set the odds at 1 in 100,000 or such, so that enough people win to make it interesting, but you still come out ahead. If 10,000,000 people buy a copy then you have to give away 100 vacations, but at (say) $10 per copy you've made out pretty well.

People could still download, share, what have you the movie, but they don't get a chance to party with their favorite movie star for a week. Given the number of celebrity worshippers there seem to be, you'd probably get a good deal of interest in this. People who are just interested in the movie could download it free or share it; if they later decide they'd like a shot at the vacation they could then buy a copy. Heck, I suspect some people would buy multiple copies just to get multiple chances.

Now you're selling something that actually is scarce -- the opportunity to hobnob with the stars. Obviously you're not going to make a lot of money after the contest ends (although you could keep extending it), but that kind of business model might just do well.

Other ideas: every time somebody spends money at your store (buys a copy of a movie, buys merchandise, goes to a theatre showing a movie) they earn points that can be redeemed for anything from merchandise to vacations. The top spenders even get celebrity-type recognition -- everyone who's spent more than $20,000 on "schtuff" gets invited to an Oscar party, and maybe the top spenders even get invited to the Oscars. But you only get credit for what you buy, not for what you download. Just make sure that everyone who actually buys something gets some skin in the game.

These are just ideas -- if these folks are as creative as they think they are, they'll come up with a lot more.

What about the game?

Your reasoning about (real, not monetary) value makes total sense to me, but what about the "game"?

As I see it we have three types of actors; creators, distributors and consumers. The old way enabled the distributors to collect huge profits, sharing some with a few select artists. The new way will wipe out the "mega star" and the distributor (concert promoters will still exist though). Will we be able to transition from one to the other, despite what the labels do to stop the change?

The total "utility" for consumers will probably be constant in terms of music-enjoyment, plus some for the added convenience and cheaper access. This is where the labels disagree with me, their only argument is that free copying means stifling creation. Remuneration and sense of success for artists will probably be redistributed both among artists and also away from artists to consumers. The labels will be total losers, consumers the only clear winners.

We as consumers have potential allies in the "marginal" artists. The labels have allies among main-stream mega-sellers., Promising/good but still marginal artists have a good chance of being picked up by a major label and defecting, if the labels can afford to offer a deal.

The "bleeding" of the labels is an autonomous, self perpetuating process. As new DRM schemes are added, someone sits down to break them just because they can. If the breaking happens sufficiently fast to bleed the labels dry, they will have to give in, and settle for a minor role as promoters and managers.

60% of the take

Alexander, are you offering 60% of the distribution revenue or 60% of the merchandising revenue?

One common error in most of your posts is believing the only revenue stream is from distribution. Distribution is dead. There's no value-add in distribution.

The other common error is believing that the charged cost is the distribution cost. Even now, the end cost is the sum of costs of production, distribution, and others. Just because one component goes to zero does not mean all end-buyer costs go to zero.

Further, it is a falsehood that zero duplication cost = infinite theft of goods. Otherwise everyone would already have a copy of every song ever released on CD. That this is not the case proves that people actually will pay for product, even if it is available for free.

Re: Re:

Look at some of the movies people have been able to make recently on almost no budget. If you can display your talents, you can do so cheaply for someone to recognize what you can do
The only problem with that reasoning is that studios don't want to see my talents becase they are not hiring me as a person, they are buying a specific movie or a pilot that they can test. I may do very well movie X, but my idea for movie Z may very well suck.

Again, you are focused on the costs, which is the wrong thing. Technology and Moore's Law have reduced the cost of production tremendously, and it's only going to keep decreasing. We've pointed to numerous examples of that.
I didn't know Moore's law applied to costumes, electricity, salaries in general (not necessarily actors), cars, props and what not. Just by repeating that focusing on costs is the wrong thing won't make them go away.

And you still haven't answered my original question: Where do I get my $10 Million to make a movie?

Re: Re:

Alexander, you make some very very flawed assumptions there. I like how you assume that anyone who writes something will be broke if they give it away for free... yet you are reading this series of articles that are all given away for free.

Exactly where did I assume such a thing? Don't twist my words, please. What I did assume is that people like to get ROI. If I spend 2 years work so that people can read my work for free, next time I'd rather spend my time better and receiving a higher ROI. And we are not talking about marketing brochures, please.

Actually these articles they aren't given for free anymore than some business issues 'free' press releases. Its part of the marketing cost. And you have google ads, too, so this is not any different than a 'free' TV program with commercials.

The first would be to make a short, cheap movie demonstrating some of your skills.
which should help get you some attention, and hopefully someone willing to finance that $10 million.

?!??! Typical slashdot-style:

1. Make dumb YouTube movie
2.???
3.Profit! Get $10 Million financing for a movie that will be distributed for free.

So the entire movie industry shall switch to the magical business model of "hopefully someone will..." for all the 500 movies produced yearly?? This is not answering the question, this is hand waving and wishful thinking. Please provide me with a concrete, STEP BY STEP method for getting the $10 million, and please identify the SOURCE of that money and its motivations, assuming that the movie will have a marginal cost of 0. I put it easy for you : You can assume that I can somehow prove to anyone that the movie will be liked, so you can assume that everyone knows my 'talents'

Oh, and by the way, the fact that movie X was a success is no guarantee that movie Y from the same director will be a success. Ask those who financed Blair Witch 2, among countless other similar bummers.

Re: Re: Re:

Exactly where did I assume such a thing? Don't twist my words, please. What I did assume is that people like to get ROI. If I spend 2 years work so that people can read my work for free, next time I'd rather spend my time better and receiving a higher ROI. And we are not talking about marketing brochures, please.

Heh. Well, I see your problem. You don't realize that everything you've done in the past IS a marketing brochure for what you do in the future. So, yes, I'll give away content for free, and then people will hire me for their analysis of their specific problems. Or they'll hire me to write a new book because they know that they can profit in other ways (promotional appearances, speaking engagements, etc.).

The fact that you don't recognize that everything you do IS promotional is a seriously flaw in your reasoning.

So the entire movie industry shall switch to the magical business model of "hopefully someone will..." for all the 500 movies produced yearly??

I like how you totally ignored the rest of my posts that explain the business models for making money on movies. I'll cut and paste to help you out:

Sell people the experience of seeing the movie. They want to see it on the big screen in comfy seats. Or, you start to bundle it with other options. Sure, let them download it for free, but if they come to the theater, give them a discounted ticket on the next movie you make. Or perhaps give them a special DVD with extras and behind the scenes footage. Or give them the chance to be an extra in your next movie. Basically, give them incentives for going and PAYING to see your movie.

In other words, there are tons of business models, and the fact that you can then use all of your previous works for promotional purposes helps make the market of people interested in seeing your movies EVEN BIGGER.

You can assume that I can somehow prove to anyone that the movie will be liked, so you can assume that everyone knows my 'talents'

Oh, and by the way, the fact that movie X was a success is no guarantee that movie Y from the same director will be a success. Ask those who financed Blair Witch 2, among countless other similar bummers.

I love how you juxtapose these two completely contradictory statements, which show exactly how twisted up you're tying yourself in knots to try to make a point that doesn't exist. First you're telling us you can prove that you will be a success, and in the very next sentence you're saying it's impossible to prove that you can be a success. If you untangle that know, you'll see where your argument has gone off the rails.

The point is that when you use content as a promotion for something else, you expand the market. The trick is simply understanding where you can capture that economic value somewhere else. I've given you a few ideas, but there are hundreds, if not thousands, more. The point is you can make a lot more money by recognize the promotional value of content.

Re: Re: Re: Re:

Or they'll hire me to write a new book because they know that they can profit in other ways (promotional appearances, speaking engagements, etc.).

Actually, the problem that you have is that everything is based on your wishful thinking about what people will and will not do. You provide absolutely no data or systematic research to back up such outrageous predictions about human behaviour, relying on anecdotes as 'evidence', yet your pretend that oh! its my problem that I fail to to have faith in your crystal ball thinking. The whole book, music and movie industries should happily follow you to the wonderful land of Oz you have seen in your crystal ball and live happily ever after.

You think that just because someone got hired for something, this means that an entire industry can be sustained on such a model. Somehow, I must have missed why people aren't exchanging clips for houses en masse.

It would be helpful if you stop condescending others on their pitiful inability to see the light and just concentrate on proving your point with data

You're so fond of quoting economic science, now you have the chance to use the scientific method to prove your point instead of the crackpot method of demanding that others prove that your methods are wrong.

Now, to the point:

Sell people the experience of seeing the movie. They want to see it on the big screen in comfy seats.

Provide data to back this claim.

The existing evidence suggests otherwise : availability of the movie at the same time as thetrical release has led to drop in ticket sales. Also, theatre tickets are at most 50% of the movie's total revenues, the rest coming mainly from DVD sales and rentals. Sometimes theatre tickets are but a meager 25%. There's ample evidence that if people can get the full content for free, they will. So basically the DVD revenues will disappear or be reduced drastically. How are you going to compensate for this? Data and specifics, please.

but if they come to the theater, give them a discounted ticket on the next movie you make
Provide data to back this claim.
Provide data or research to back up the claim that this discount will increase attendance to a point sufficient to compensate for the lost DVD revenues AND the lost ticket revenues due to the discount.

Or, you start to bundle it with other options.
Like what? Specifics, please. No hand waving, unless you are willing to accept arguments like "You are wrong for many 'other' reasons".

Or perhaps give them a special DVD with extras and behind the scenes footage
Which has a marginal cost of 0 too, so you won't make any profits off that. Content is content, special or not, extras or not.

Or give them the chance to be an extra in your next movie
Provide data to back the claim that this will compensate for the lost revenue streams.

In other words, there are tons of business models
which you systematically fail to show when pressed.

Sure, that's why theatre attendance has been decreasing steadily the last 4 years - almost a whopping 9%. And you probably have missed the small detail that theatre revenues account for only a small percent of the total revenue, the majority of the rest being DVDs

First you're telling us you can prove that you will be a success, and in the very next sentence you're saying it's impossible to prove that you can be a success. If you untangle that know, you'll see where your argument has gone off the rails.

How about if you pause for a minute and think about what I'm saying instead of just rushing to point my apparent 'contradictions'. Of course that in the real world it is impossible to predict future success from past success. Just as in the real world a movie doesn't cost $10M, it costs $60M on average, and $96M if you include marketing and distribution costs. I was just being benevolent towads you allowing you to prove your point using a less-than-realistic setting.

You want a realistic and "non contradictory" setting? OK. Be my guest and answer the real-world version of my question:

I'm a movie director. My movie costs a realistic $96 million dolars, and this is an average cost. I'm not shooting a top-budget, A-stars movie. I have no way of proving it will be a success, no matter how much successful I have been in the past. Where do I get the money from, to make a movie that will be distributed for free. I would like SPECIFICS as for who is going to pay for this movie, and the model must be sustainable for the whole industry, in the sense that it must be able to meet or outperform current movie production (500 movies per year in the US).

Re: 60% of the take

Alexander, are you offering 60% of the distribution revenue or 60% of the merchandising revenue?

60% of whatever I make through any means. Do you have any data about the average revenue a movie makes through merchandising?

The other common error is believing that the charged cost is the distribution cost. Even now, the end cost is the sum of costs of production, distribution, and others.
Wow, what an economic nonsense. "Charged cost"? What's that - the price?. The price is certainly NOT the sum of the above quantities.

Further, it is a falsehood that zero duplication cost = infinite theft of goods.
And you call straw man? Where did I speak about infinites, theft, duplication and things like these?. I am speaking about accepting Mike's premise that the price of the movie is 0 and therefore people are able to get it legally for free. It is Mike's premise, not mine.

Otherwise everyone would already have a copy of every song ever released on CD.>
hat this is not the case proves that people actually will pay for product, even if it is available for free.
So the fact that air is free and yet people don't have all of it proves somehow that they are willing to pay for it?
What a nonsense. It only proves that people are not interested in every single CD, just as they aren't interested in owning all the air as long as they have the part they need.

Re: Make people actually *want* to buy it!

Either find that $1E+07 somewhere, or give up on it, or be creative and find ways to knock that price down or to make people actually want to buy your stuff, but don't ask the law to protect your dream.

Handwaving.

Try this: everyone who buys a copy of the movie from you in the first two years gets entered into a lottery for an all expense paid vacation,
You know, this is the first reasonable thing I the whole discussion. Now please provide some evidence that this works. I'm pretty sure it has been tried, you you might as well research it and come back with hard data.

These are just ideas -- if these folks are as creative as they think they are, they'll come up with a lot more
This, however, is not reasonable. It's more handwaving.

Re: Re:

That's like saying, I want to design the best car ever, but the costs of production are set in stone and it's going to cost me a million dollars to make. Now tell me how to make that money back?

Didn't you read my reply to this argument? Or are you simply pretending it doesn't exist?

First - A real movie doesn't cost $10 Million, it costs $96 Million. By requesting 'only' 1/6th of the real price, I think I've made quite a reduction, haven't I?

Second - Of course costs can be reduced. Of course the same movie can be made with sub-par actors, less special effects and so on. And of course people will like it less, because they are not stupid. I did provide a quite illustrating and recent specific example.

The costs can be reduced to 0 if you want, and you'll make 0 money with that movie. And they can be reduced to a $5 Youtube movie but it's clear that if you make a Star Wars with $5, you won't get the box revenue of Star Wars, and it won't be Star Wars, even if it has the same script and director. You can't start with a Mercedes, then cut the prices and everything down to what a Citroen uses, and then pretend to sell the result to the same public getting the same results as if it were a Mercedes.

Third - Pretending that costs can be reduced somehow trivially is insulting all who work in the industry by calling them dumbs. Don't you think any cost reduction that is as trivial as the examples you provide WILL be done? Or maybe you think that movie studios just LOVE to spend for the sake of spending. Do you actually think production costs are what they are because nobody tries to bring production costs down? Do you choose the first vendor or designer or whatever that comes by and accept his price without negotiating? What then makes you think that the rest of the world (movie industry included), is dumb and does?

I would like to hear how you would reduce your costs by 5/6ths from your current level. Just wishful thinking and handwaving don't work. Go ahead. It's your business. Provide some specifics. No need to hide behind general words.

I challenge you also to provide evidence that there are cost-saving measures (that do not impact revenues) that are NOT being applied currently.

Also, I request permission to copy, distribute and republish all the contents of techdirt.com (including everything that techdirt produces that has a margin cost of 0), for free and without paying you or anyone, and without any limitations or conditions. Don't worry, after I get it you will still have it. Let's see if your money is where your mouth is.

Re: Re: Interesting argument, but completely wrong

Books of Skakespearean plays continue to sell well.

...Verdi created a lot more content when there were no copyright laws, because to keep making money he had to keep producing content.

Well, shrinking the size of the whole book-publishing industry to the size of those book publishers selling noncopyrighted works or shrinking the music industry to the size of the music industry at the time of Verdi is precisely the definition of "collapse".

It would be interesting to hear also why do you think selling shakespearean books is profitable, if the price is the margin cost.

Re: Re: Re: Re: Re:

The whole book, music and movie industries should happily follow you to the wonderful land of Oz you have seen in your crystal ball and live happily ever after.

Nope. They'll follow it or they'll go out of business. It's that simple. The ones who are slow will discover how screwed they are after others adopt the model and start making a lot more money with it.

You think that just because someone got hired for something, this means that an entire industry can be sustained on such a model.

The entire industry already is sustained by this model. It's just that you don't realize it yet. No one sells non-scarce resources. They simply sell scarce resources related to that non-scarce resource. You sell the experience of the movie. Or the convenience of finding a song. You do not sell the actual content. So it's always been the way the industry has done business -- the problem is that THEY don't realize it, which is why THEY are having trouble recognizing how to change with the market, thinking they need DRM when they don't.

It would be helpful if you stop condescending others on their pitiful inability to see the light and just concentrate on proving your point with data

Sure, as I pointed out the entire industry is already supported this way so that should be a pretty significant amount of data right there. The problem is that the industry itself misinterprets the data, thinking they really are selling "music" or "movies" when that's not the case.

The existing evidence suggests otherwise : availability of the movie at the same time as thetrical release has led to drop in ticket sales. Also, theatre tickets are at most 50% of the movie's total revenues, the rest coming mainly from DVD sales and rentals. Sometimes theatre tickets are but a meager 25%. There's ample evidence that if people can get the full content for free, they will. So basically the DVD revenues will disappear or be reduced drastically. How are you going to compensate for this? Data and specifics, please.

No, the reason for this is because (again) the industry misunderstands its own market. If it concentrated on making the *experience* of going to the movies better, then there'd be little to worry about from competition from DVDs. By the way, can you cite where your data is from?

However, the point is that if the theater owners realized they were selling the experience, they'd make the experience a hell of a lot better. They'd make "going out" to the movies a big social experience. People "go out" to clubs despite the fact they can listen to music at home for free. Why? Because they like the experience of going out. With movies it should be no different. So your data is meaningless here, since the theaters haven't realized what their real business is.

Provide data or research to back up the claim that this discount will increase attendance to a point sufficient to compensate for the lost DVD revenues AND the lost ticket revenues due to the discount.

Sure, just look at EVERY SINGLE INNOVATION to hit the entertainment industry, and notice how it increases the overall pie. Why? For the exact reason described in the article: because it adds an additional non-scarce resource that can be copied infinitely at no extra cost. That's what increases the pie. All you need to do is figure out where to capture that money.

And the good thing (well, not for you) is if you can't do it, then someone else will -- and those of you who don't will be out of business.

Like what? Specifics, please. No hand waving, unless you are willing to accept arguments like "You are wrong for many 'other' reasons".

I already listed a bunch. Just because you ignore them doesn't mean I need to do more work for you.

Sure, that's why theatre attendance has been decreasing steadily the last 4 years - almost a whopping 9%. And you probably have missed the small detail that theatre revenues account for only a small percent of the total revenue, the majority of the rest being DVDs

Again, because of their own failure to embrace this model. It's inevitable. Once they embrace the model, attendance will pick up again.

I'm a movie director. My movie costs a realistic $96 million dolars, and this is an average cost. I'm not shooting a top-budget, A-stars movie. I have no way of proving it will be a success, no matter how much successful I have been in the past. Where do I get the money from, to make a movie that will be distributed for free. I would like SPECIFICS as for who is going to pay for this movie, and the model must be sustainable for the whole industry, in the sense that it must be able to meet or outperform current movie production (500 movies per year in the US).

Ok. Sure (though I thought I already did this). You promote the hell out of the movie online. You make sure that it's showing in top notch theaters that actually understand the value of the moviegoing experience and you give people plenty of other reasons to attend (many of which I listed above), but I'll throw them out again, with some new ones:

* If someone attends the movie they get a discount on your next movie or another movie at that theater

* If someone attends the movie, as they walk out they get (or can buy cheaply) the official DVD with a bunch of extras (much more convenient than downloading it)

* The stars of your movie make guest (perhaps surprise) appearances at various theaters to talk about the movie. That encourages people to go out and see it.

* You give anyone who attends the movie a lottery ticket to be in your next movie as an extra

* The ticket stub from attending the movie can be handed to a friend and they can use it to get into the movie at a slight discount.

* After you leave the movie the back of the ticket has a code on it that lets you access a special chat room online to discuss the movie with others who actually saw it in the theater.

* For seeing the movie, you get a chance to win a trip to a party with the cast of your next movie

Etc. etc. etc. The list is pretty long if you start to think about all the possibilities.

But here's why you end up making your money back (assuming the movie is any good). You have much better marketing for the film now. You can actually use the content to market it. You have a much better movie going experience, because the theaters finally recognize that they're selling an experience, so rather than hating going out, more people are going out. Some of the ideas above help entice more people to go to the theater, because not only are they getting an awesome night out and a chance to see a great movie on a big screen with a great sound system with friends, they also have all these other great perks that they would never get just watching the movie at home.

All in all, you're going to end up making a lot more money that way -- because the overall experience is better, the pie has increased and more people are going to be willing to pay for the awesome experience.

Re: Re: Re:

First - A real movie doesn't cost $10 Million, it costs $96 Million. By requesting 'only' 1/6th of the real price, I think I've made quite a reduction, haven't I?

Yeah, but you're still focused on cost, not benefit. I honestly don't care about the cost, because the cost half of the equation is meaningless without the benefit. The point is that if you can provide more value, then there's money to be made. I've describe how pretty clearly, though you seem to want to deny it.

Second - Of course costs can be reduced. Of course the same movie can be made with sub-par actors, less special effects and so on. And of course people will like it less, because they are not stupid. I did provide a quite illustrating and recent specific example.

Right. That's why millions of people watch stuff on YouTube all the time.

Third - Pretending that costs can be reduced somehow trivially is insulting all who work in the industry by calling them dumbs

Actually, there have been plenty of economic studies on this very issue -- and what they've discovered is that, no, movie studios aren't very good at reducing costs, due to the way the industry is structured. So part of what this model does is force them to get in line.

I challenge you also to provide evidence that there are cost-saving measures (that do not impact revenues) that are NOT being applied currently.

I think the success of many cheap independent films, often with tremendous special effects does a pretty good job of that on its own.

Also, I request permission to copy, distribute and republish all the contents of techdirt.com (including everything that techdirt produces that has a margin cost of 0), for free and without paying you or anyone, and without any limitations or conditions. Don't worry, after I get it you will still have it. Let's see if your money is where your mouth is.

Oh, PLEASE go for it. You certainly don't need our permission. We've discussed this before (are you new here?) There are already about 4 or 5 sites put up by folks who do exactly that. They just copy everything we write. They sometimes give us credit, but more often strip off our name. That's cool. You know why? Because it's a total waste of their time. They don't provide the actual value, so no one reads it. The folks who know better simply know to come to our site. After all, part of the value we provide is in the discussions and the fact that you can ask us direct questions. That doesn't happen when people copy our site.

Honestly, all that happens is the few people who discover the knockoff site eventually realize all the content originated at Techdirt, and they come here.

So please go right ahead and copy, distribute and republish all the contents of Techdirt. THANK YOU for helping to better advertise and distribute our stuff! I'd bet that it won't be worth your time, but if it turns out that it is, that only improves our own standing as well.

So, please go for it. I'd appreciate it if you let us know where and how you're doing this so we can track it ourselves, but if not, that's cool too.

Re: Re: Re: Interesting argument, but completely w

Well, shrinking the size of the whole book-publishing industry to the size of those book publishers selling noncopyrighted works or shrinking the music industry to the size of the music industry at the time of Verdi is precisely the definition of "collapse".

You do realize that the best selling book every year doesn't have copyright protection, right? I'll leave it to you to figure out what that book is.

It would be interesting to hear also why do you think selling shakespearean books is profitable, if the price is the margin cost.

Um. No, the marginal cost of a book is not zero. The marginal cost of the content in the book is zero, but a book itself is a scarce resource. Once again, it goes back to the very model we're discussing here. The content (the non-scarce resource) is what makes the scarce resource (the book, the binding) valuable. So you're buying the scarce resource due to its connection to the non-scarce resource.

Re: Re: Re: Re: Interesting argument, but complete

You do realize that the best selling book every year doesn't have copyright protection, right? I'll leave it to you to figure out what that book is.

I can guess, thank you. Is this the best you can offer? Selling religion?

Um. No, the marginal cost of a book is not zero.
Excuse me, but you are obsessed with zero. Did I say zero? No. I said that , according to your theory, price should be the margin cost (whatever it is). So I ask again. How do they make a profit?

Re: Re: Re: Re:

So please go right ahead and copy, distribute and republish all the contents of Techdirt. THANK YOU for helping to better advertise and distribute our stuff! I'

Ah Mike, Mike, again you jump on the bandwagon too fast, and you assume too much.

Did I say that I was going to keep your name on the materials I copy? Not at all, of course.

I'm going to use your philosophy of "zero=infinite" combined with "copyright is not necessary" and use your materials - properly edited, of course - as raw input source for offering my service, which happens to be the same as yours. I assume you are ok with this, aren't you?

Re: Re: Re: Re:

Yeah, but you're still focused on cost, not benefit. I honestly don't care about the cost,.

Ha! You don't care about the cost of producing something?.

The problem is that, in that nuisance called 'real world', someone has to pay the cost FIRST in order to obtain the benefit(?) (or do you really mean profit?) . But if you think cost is irrelevant, why are you so obsessed with reducing it?

Right. That's why millions of people watch stuff on YouTube all the time.

Of course. Do I understand that the movies in YouTube will be the kind of movies that we will have in your new-world economy? Hey, how came nodoby I know feel s compelled to watch any of the YouTube stuff in a theatre, much less buy merchandise or 'meet with the star'?

And by the way, star wreck took 7 years to make. Is this the rate of release of somewhat of decent quality that we can expect?

Actually, there have been plenty of economic studies on this very issue
Feel free to point me to one. Specifics, please.

I think the success of many cheap independent films, often with tremendous special effects does a pretty good job of that on its own.
Ahem... This is not the same, but anyway, feel free to provide some hard economic data on them. Specifics, please.

Re: Re: Make people actually *want* to buy it!

Either find that $1E+07 somewhere, or give up on it, or be creative and find ways to knock that price down or to make people actually want to buy your stuff, but don't ask the law to protect your dream.

Handwaving.

Actually, the colloquial expression is "fish or cut bait". It's not my problem to make sure that your chosen business model succeeds.

Try this: everyone who buys a copy of the movie from you in the first two years gets entered into a lottery for an all expense paid vacation,

You know, this is the first reasonable thing I the whole discussion. Now please provide some evidence that this works. I'm pretty sure it has been tried, you you might as well research it and come back with hard data.

I have no clue whether it will succeed or not. I'm just suggesting a business model that has the potential to work in the presence of very low distribution costs (in other words, where the third-party distribution costs are no higher than yours, so that you have to compete against alternate distribution channels). Doubtless there would be a lot of fine tuning.

These are just ideas -- if these folks are as creative as they think they are, they'll come up with a lot more

This, however, is not reasonable. It's more handwaving.

So what? I'm not the one trying to make money off this. I just threw out a couple of ideas.

Re: Re: Re: Re: Re: Re:

Nope. They'll follow it or they'll go out of business. It's that simple.

I see... You've seen the future, right?

Sure, as I pointed out the entire industry is already supported this way so that should be a pretty significant amount of data right there.

Well, feel free to provide some of that data. Specifics, please.

You promote the hell out of the movie online.
What does this mean, in figures, and how do you do that? Oh, I forgot that costs don't matter to you (your own words). So we can spend.. what? $2 Billion in online promotion. Wow, I'm pretty sure everyone will dream our movie with such a promotion

If someone attends the movie they get a discount on your next movie or another movie at that theater
You are repeating yourself without answering my objection to that very same idea. Repeating something a thousand times won't make it true.

The ticket stub from attending the movie can be handed to a friend and they can use it to get into the movie at a slight discount.
This is a variation of the previous one. So, besides slashing DVD profits to zero, you propose slashing movie theatre profits, too??? Oh man...No wonder you envision the future of the movie industry as a giant YouTube.

If someone attends the movie, as they walk out they get (or can buy cheaply) the official DVD with a bunch of extras (much more convenient than downloading it)
What will stop someone else for selling the very same copied DVD at half my price? Not in the theatre, but on the street. Profit goes to him,until price =MC in which case everyone stops making profit.

After you leave the movie the back of the ticket has a code on it that lets you access a special chat room online to discuss the movie with others who actually saw it in the theater
Oh! A code?!?!?!!? Wow! Access control!. One step more and you'll be proposing DRMs. What would stop me from distributing that code or from selling DVDs with that code?

The stars of your movie make guest (perhaps surprise) appearances at various theaters to talk about the movie. That encourages people to go out and see it.

You give anyone who attends the movie a lottery ticket to be in your next movie as an extra

Ok, agreed that this two *may be* viable. Now please provide hard data about them.

So your data is meaningless here, since the theaters haven't realized what their real business is.

Sure Mike, sure. You just act like the crackpots who regularly reinvent the theory of gravity

- When confronted with contradicting data, it's the others that don't understand what they have been doing, and "of course" the data is meaningless. And of course, you don't provide any data disproving it, either.

- The theatres, the movie studios, the music companies don't have a clue about what their business is. That's right. They've been making billions of profits by sheer luck and chance.

- Production costs dont' matter. "Entry barriers? What's that?" I just bought yesterday a Core Duo processor at margin costs ($10)...or did I just dream it?

- Of course, you have (and sell) the cure for all the ailments of all the content-producing industries, because you have seen the future and know for sure what will happen and what people will do in all the possible example cases

With such a profound insight into human nature and the future, it's strange that you are not a billionaire.

Only one element of the crackpot rethoric is missing and it's the conspiration/paranoia. I wonder when will you say that someone hides data, or that someone is after your ideas, or that the "establishment" is supressing your business methods.

But I have no trouble providing MY data, something you have yet to do a single time. By the way, if the data is meaningless, why are you interested?

Re: Re: Re: Make people actually *want* to buy it!

Actually, the colloquial expression is "fish or cut bait". It's not my problem to make sure that your chosen business model succeeds
Ha! Now I have to prove your argument? How's that?. You are the one who is saying that the movie industry can continue making money and movies if they were distributing them for free. So excuse me, but that's for you to prove.

So what? I'm not the one trying to make money off this. I just threw out a couple of ideas.

But of course.... I also have a couple of ideas how you could make money working for me for free. Of course, I don't know if it will work, but so what? I'm not the one trying to make money off this. I'm just throwing out ideas. So don't hesitate, come to work for me for free. You are creative, I'm sure you'll find ways to make money off this kind of relationship.

Re: Make people actually *want* to buy it!

I thought of the lottery model as well for raising money (it seems to have worked for The Great Wall of China). What I had in mind, is a big money jackpot - which should make it irresistible not to enter the lottery, so this is to attract a lot of participants - and all the other prices in the form of non-scarce goods, instead of scarce money.

This should not be started with movies first, music is best suited to start such a model. Once it gains in popularity and more tickets are sold, then other non-scarce goods can be given as prizes as well, like: e-Books, movies, games and software. At some point the non-scarce prizes that all the participants are guaranteed to win, could become the dominant reason to enter the lottery.

Take this simplified example: let's say that you sell $10 tickets online, and you are going to sell 20 million tickets worldwide. You use half for the money jackpot of $100 million, the other half you use to fund the recording of albums ($50k each, consisting of $30k cost and $20k profit for artists and producers). That comes down to 2,000 music albums. All the participants win the prize of downloading those 2,000 albums for free. If you sell 200 million tickets worldwide, that would be 20,000 albums that everyone wins. That might be a bit much, so you could lose 200 albums and instead of those do one movie (at $10 million). Or 200 e-Books, or a computer game, or a piece of software. This lottery, instead of having a fixed draw date, it could have a fixed target, like 20 million tickets. So only once all those tickets have been sold there will be draw. This approach is used by SellaBand to raise the $50k to record a music CD. So there is no risk that you won't sell enough tickets. The participants can get a refund at any time before all the 20 million tickets have been sold. So there is also no risk in it for the participants.

Because it is difficult to predict human behavior we could simply make small modifications to the model and test them in practice. For example money from the jackpot could be shifted to the non-scarce prizes, and see if people will still buy tickets then. Also instead of giving just the participants free access to the non-scarce prizes, a part of those prizes could be made available to everyone (so not only to those that entered the lottery). Maybe it would be possible to successfully move to a lottery with no money jackpot, but only non-scarce prizes that can be freely downloaded by everyone. At that point it can't be classified as a lottery anymore, it would be voluntary cooperation in the form of $10 donations. This way people could experience the great things that are possible when we cooperate, and then they might not try to get a free ride, because of the risk that it would collapse this venture, and that could result in a loss of millions of dollars worth of non-scarce prizes in the future.

I think such a lottery model with non-scarce prizes can become very successful very fast.

Re: Re: Make people actually *want* to buy it!

Hmm.. Congratulations because actually the reasoning is sound, specific, and down-to-details.

it seems to have worked for The Great Wall of China
This I don't understand. Are you referring to reconstruction work or to the initial building?

All the participants win the prize of downloading those 2,000 albums for free
Do you agree with the 'free-content- theory? I mean can I copy this album?

Because it is difficult to predict human behavior we could simply make small modifications to the model and test them in practice
When you say we, are you willing to experiment with your own money? Because the problem with all these movie-industry doomsayers is that they are never willing to experiment with their own money in that sector. They always give mouthfuls of advice about how others should run their businesses, but never are willing to actually get financing for a decent (not YouTube sh*t) movie, produce it and give it for free to see if their bombastic theory works.

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Alexander,

Pointing me to MPAA data is pretty funny. You realize how often that data has been destroyed? It's so wrong it's not even worth commenting on.

Anyway, I think we've hit the point where we're going around in circles. I've given you the data, you just choose to ignore it (or brush it off). I've shown you how sales can be quite strong without copyright.

You idiotically brush off the Bible because of the "religious" connection -- but I never said everything needs to use religion. I said you connect bundle things. In this case, the book is bundled with religion.

I gave you half a dozen examples of other ways to bundle, and you brushed off each one.

The point is that there isn't just one solution, but that you recognize that it's the bundles that sell.

You want data? JUST LOOK AT THE SUCCESS OF THE ENTERTAINMENT INDUSTRY TODAY.

It's all about bundling. It always has been. People don't buy music. They buy the convenience of the CD. It's the music that adds the value to the plastic CD. It's the liner notes. It's the thrill of having the actual CD.

People don't buy "movies." They buy the fun of an evening out and being entertained in comfy seats with a huge screen and an awesome sound system. They don't buy a movie at home, they buy a DVD because it's convenient and it offers easily accessible extra features.

The point is simply that the mix of bundles is changing.

You totally miss the point by saying that a book should be sold at marginal cost. The WHOLE POINT of what we've been saying here is that by attaching the non-scarce content to a scarce good you are then able to sell that scarce good at higher than marginal cost. It's basic economics. That non-scarce good provides more value and differentiation to the scarce good and that's where the value is.

You say that promotions are too expensive when the whole point is that they're not expensive at all, because YOU'RE USING THE NON-SCARCE GOOD FOR PROMOTION. You see? It's not costly, because there's no marginal cost in the promotion. You then tie it to the scarce good and you can profit it from it by selling much much more. Promotions are cheaper and can spread wider, and by bundling the offering properly, you end up a hell of a lot better off.

It's not that hard to understand -- but again, if you think you can do a better job with it, go ahead. I'll give you all the credit in the world.

Re: Re: Re: Make people actually *want* to buy it!

When you say we, are you willing to experiment with your own money? Because the problem with all these movie-industry doomsayers is that they are never willing to experiment with their own money in that sector. They always give mouthfuls of advice about how others should run their businesses, but never are willing to actually get financing for a decent (not YouTube sh*t) movie, produce it and give it for free to see if their bombastic theory works.

Oh sure. I wouldn't directly finance a single movie (because the quality from movie to movie is important), but I'd absolutely be interested in financing (or starting myself) a company that would produce movies of this nature. I'm pretty focused on our own business right now (which is proving out this model in a very different space), but at some future point, I have no objection to showing other industries how the model works as well.

Also, don't tell me my money isn't where my mouth is, because I've been living this very model in a different industry for years -- and we're succeeding and starting to show the old guard how antiquated its model is. The question is which industry to take on next. Could be movies. Could be music. There's so much opportunity due to folks too tied to the old business model. It's a tremendous opening to profit -- and I certainly intend to take it as soon as possible.

Logical flaw in your reasoning

1. Successful business models must necessarily increase value.
2. DRM does not increase value for the consumer.
3. Therefore, DRM cannot be a successful business model.

#3 does not follow from #1 and #2. If DRM business models could increase value for the producer by a greater amount than they decrease value for the consumer, then they could be successful.

To demonstrate the conclusion, the article would need to show that increased consumer value is specifically necessary for success, or that DRM is also incapable of increasing producer value, or that any increase in producer value necessarily incurs a greater decrease in consumer value. None of these are addressed.

Also, I take exception to the use of "value" as a universally countable quantity. Suppose DRM goes away, consumers gain easier access to a huge library of free content, and a small group of professional artists lose their jobs. Would that represent an overall increase or decrease in "value?" How do you measure it?

Re: Logical flaw in your reasoning

#3 does not follow from #1 and #2. If DRM business models could increase value for the producer by a greater amount than they decrease value for the consumer, then they could be successful.

Sure #3 follows from #1 and #2. Value is in the mind of the consumer only. It doesn't matter what the producer values. There is no market without demand. If there is demand, then a producer can figure out a way to satisfy it.

Also, I take exception to the use of "value" as a universally countable quantity. Suppose DRM goes away, consumers gain easier access to a huge library of free content, and a small group of professional artists lose their jobs. Would that represent an overall increase or decrease in "value?" How do you measure it?

The same way you measure any markets. And, I find it hard to believe that any professional artists would lose their jobs. In fact, more would get jobs. It's the same thing as when the VCR was introduced and Jack Valenti swore up and down it would destroy the industry. Did it? No, it helped the industry thrive and created many, many more jobs. The same is true if you stop using DRM, because it expands the market.

It's true that people would make money in different business models, but there would be a lot more money to be made because the pie has expanded.

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Pointing me to MPAA data is pretty funny. You realize how often that data has been destroyed? It's so wrong it's not even worth commenting on.

Ahhh there it is, the paranoia/conspiratorial element of crackpot science... And you tell me I brush off your data? Now that's ironic
Unfortunately for you, their data matches other associations' data. Oh. Maybe there is a global world conspiration?

What is the falsifiability criteria of your theory? What should happen for you to recognize that you are wrong? *Every* scientific theory has a non ambiguous test. Which is yours? Is this a situation you contemplate at all? Or are you 'simply right.period'?

Of course crackpot theories aren't falsifiable. Their authors will come with endless excuses and explanations a posteriori about why the failure of their pet theory is really someone else's responsability : "data was bad, theatre was not good enough, screen was too bright, people caughed too much, you should have sold green popcorn". Are you a crackpot economist? Provide a falsifiable test for your theory.

You idiotically brush off the Bible because of the "religious" connection
I "idiotically" brush off your utter ignorance that a book that has been compulsory during quite a few periods of time may not be the best example for anything market-related. Or maybe you advocate forcing people to have things? Do you know which is the second most sold book (or the first one, according to some accounts)?. Mao's Red Book (and yes, it's was not copyrighted either. But if you didn't have one you were in trouble). Learn some history before offering nonsensical examples about 'bundling'.

I gave you half a dozen examples of other ways to bundle, and you brushed off each one.

Yes, with objections you don't ever answer. And you haven't produced a single piece of data (data as in "figures, studies, statistics research), yet. You talk and talk and talk and constantly refer to your crystal ball and your visions of the future, and don't provide any hard data, just the occasional anecdotic pseudoevidence that fills the self-help literature. And of course, if someone shows you data that contradicts you, "it isn't worth commenting". Way to go, Mike, way to go.

Sure, just look at EVERY SINGLE INNOVATION to hit the entertainment industry, and notice how it increases the overall pie.
BEEP! non sequitor Even if the above were true still doesn't prove that this particular innovation of yours will increase the pie.

You see? It's not costly, because there's no marginal cost in the promotion.
Sure... Can I get a ticket to your world of free bandwith, free servers and instantenous knowledge?. The moment you put your DVD online, the whole world will somehow instantly know about it. Wow...

And you didn't answer where will I get my $96M for making a movie. In my world, cause comes before effect, so answering "where do I get $96M for making a movie that will be distributed for free" with "Well, you promote your (already-made) movie so and so and you do so and so with tickets" doesn't make much sense.

Also, don't tell me my money isn't where my mouth is, because I've been living this very model in a different industry for years

How about if you provide some data? DATA, as in "figures, statistics, etc." Or maybe I should believe you just because you say so? Oh, you have seen the future. Sorry. Forgot that...

Let's compare the profits you made with this model with the profits others made during the same period of time while they were using a different model, to see which gives better ROI.

Because in this world there's a veeeery veeeery small detail : Our lifetime is finite. So our time is a scarce resource any way you look at it, even if everything else was infinitely abundant and free.

So between model A that gives profit 5 and model B that gives profit 50 for a period of time and all other factors equal, I pick model B any time. How was that...yeah, that phrase you repeat like a mantra... ah, yes "It's basic economics!". Opportunity cost

Of course, you can make a movie in 7 years for 0 cost (your example) and even make some profit (never said otherwise), but assuming I were an actor, I'd probably want to do a bit more than 9 movies in my whole life, and I'd probably want some more money back for my 7 years of work.

Ah, and you probably missed the small part where StarWreck says you cannot use the DVD in any commercial way. So long for your "content is free", "copyright is not needed" thesis in your Star Wreck own example.

Oh sure. I wouldn't directly finance a single movie (because the quality from movie to movie is important), but I'd absolutely be interested in financing a company that would produce movies of this nature

So well, what are you waiting for? Didn't you say that initial, fixed, costs do not concern you and that there's plenty of money to be made? Didn't you offer YouTube as an example of stuff millions of people are watching. Go ahead, please, show us how to do it.

You totally miss the point by saying that a book should be sold at marginal cost. The WHOLE POINT of what we've been saying here is that by attaching the non-scarce content to a scarce good you are then able to sell that scarce good at higher than marginal cost. It's basic economics.

Make up your mind! One day you say one thing and it's the "basic economics" of the day, the next day you say something completely different and it is also the "basic economics of the day". Either the market pushes prices to margin costs or it doesn't.

Does or does not the market push the price of goods towards margin prices? Under what conditions?

And don't lecture me, I know the answer. Just want to hear it from you simply stated.

Here's a small recap of the data (DATA, as in "figures, reports,statistics, studies", etc.. the stuff your accounting department does) you haven't provided for your claims, which are so far baseles (of the "Just because I, Mike, say so" type):

* Data that people, having a freely available movie, will still want to see it on the big screen in comfy seats.

*Data or research to back up the claim that discounts in movie tickets will increase attendance to a point sufficient to compensate for the lost DVD revenues AND the lost ticket revenues due to the discount.

*Data or research that, having the movie free and offering people the chance to be an extra in a movie compensates for lost revenue streams.

* Data or research to back your claim that "Actually, there have been plenty of economic studies on this very issue -- and what they've discovered is that, no, movie studios aren't very good at reducing costs"

* Data about these
"many cheap independent films, often with tremendous special effects"

Re: Re: Re: Make people actually *want* to buy it!

"it seems to have worked for The Great Wall of China"
This I don't understand. Are you referring to reconstruction work or to the initial building?
The initial construction is said to have been financed by funds raised with lotteries, but I can only give you Wikipedia and this source and I don't know if their information is accurate. But the point was that throughout the ages lotteries have shown to be very successful in raising funds.

"All the participants win the prize of downloading those 2,000 albums for free"
Do you agree with the 'free-content- theory? I mean can I copy this album?
Yes and you can. Getting the attention of 200 million people is very valuable, you can get revenue from selling advertisement space on your download portal. Artists can reach a large audience which can be beneficial for their CD sales, t-shirts and concert tickets. It can be done sustainable.

"Because it is difficult to predict human behavior we could simply make small modifications to the model and test them in practice"
When you say we, are you willing to experiment with your own money?
I would love to get the chance to invest some money in SellaBand, but like most other startups they are not open to small investors. But if for example Google with their huge worldwide audience would try such a venture then I would buy shares in Google.
As for investing in the production of free content, I already do that on SellaBand by investing in the recording of albums. $50k needs to be raised for a professional recording. For every $10 part that I buy, I get a limited edition CD, which also could become a collectors item and thus more valuable. I also get a share of the profits from advertisements and CD sales. But if you buy just one part in a band, then the profits might not be important to you at all. It's the same for the artists, because due to the increased publicity they might increase their revenue from their gigs and they now posses a professional recording which is good for promoting their performances. And they probably haven't invested a lot of their own money in the recording. For SellaBand it is also not needed as they didn't put their own money in and they can cover the costs with revenue from ads and the interest on the money deposited in the escrow account. Profit of course would be desirable as it can be fed back into the system and make it grow faster. The bigger it gets, the better it works.

I think there are many more who would like to invest, but they don't have the money to start a new business, so they will need to convince a couple of venture capitalists to invest their money which is difficult. Also because I think there is a chance that an established company (or lottery) that already has a huge audience, could see your success and copy your model and immediately have the upper hand because they already have a huge number of users (or a lot of content to attract them). Imagine what would happen if Google or a big lottery would copy what SellaBand does.

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Alex, you're asking the wrong questions.

Of course, there's no way to know in advance whether a particular business model will work. Maybe the lottery, merchandise tie-ins, etc. won't work. Nobody will know unless they actually try -- not go throught the motions, but really try to make it work. So no, there's no data on it.

This $96 million you're quoting is hogwash, too. If the revenue from movies goes down, the studios will find ways to make movies for less, or they'll go out of business. The point is that it's not the government's business to ensure that these studios stay in business in the models they're used to, and without government enforcement, DRM falls apart.

It's up to the movie studios to figure out a business model that will work in the presence of almost costless distribution, not to artificially impose costs on something that by the current state of technology doesn't have any. It's not like other forms of entertainment haven't been able to adapt; professional sports rake in money hand over fist.

Robert A. Heinlein understood this way back in 1939, in his very first story, "Life-Line":

There has grown up in the minds of certain groups in this country the notion that because a man or corporation has made a profit out of the public for a number of years, the government and the courts are charged with the duty of guaranteeing such profit in the future, even in the face of changing circumstances and contrary public interest. This strange doctrine is not supported by statute nor common law. Neither individuals nor corporations have any right to come into court and ask that the clock of history be stopped or turned back, for their private benefit.

The story was that someone invented a machine that could accurately and precisely predict the moment of a person's death, and the life insurance companies took him to court on the grounds that his machine was putting them out of business. The judge rather eloquently told them to take a hike.

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Alexander,

Based on your theory there would be no progress. Henry Ford never would have gone to mass production, because there was no "DATA" on how mass production would produce a better economic position than than one-off production.

If you want data simply look at the history of economic markets. There's tons of data. Price gets pushed to marginal costs in competitive markets. The way you make profit is by differentiating (i.e., adding unique value). My point with this series is clear, the market for content becomes competitive (i.e., price gets pushed to marginal cost) due to the infinite nature of the content. So you compete by adding unique value -- that's why the book example works, because the person providing the book is offering unique value that can't easily be copied.

The problem is that you see your old business model and assume it lasts forever, ignoring the economic changes in the market. It's not about data it's about the same economic forces that have always worked since time began. There is nothing new here. It's basic economics that anyone can understand if they took their blinders off.

The thing is, I really feel sorry that you don't seem to be grasping this -- and I apologize that I apparently can't explain it well, because if you really are a movie maker, then this is going to be a huge problem for you very soon. There are some people out there who are already experimenting with this model, and it won't be long before the traditional way of doing business is seen as outdated. If you insist on doing business that way, you're going to be in a lot of trouble.

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Its symptomatic that you fail to answer the first question about the falsifiability criteria of your theory:

*Every* scientific theory has a non ambiguous test. Which is yours? Is this a situation you contemplate at all? What is the falsifiability criteria of your theory? What should happen for you to recognize that you are wrong?
It's basic science :-) (as opposed to crackpottery)

Based on your theory there would be no progress. Henry Ford never would have gone to mass production, because there was no "DATA"
Hey, is this an admission that you have no data, either? Now that's a progress. But anyway BEEP! non sequitor
Excuse me, but I have no theory, its your theory the one who is being put to test. The fact that Henry Ford did what he did doesn't imply in any way that your theory is going to work. Of course, it doesn't imply it's going to fail, either. It's simply totally independant.

It's a curious view of progress, you have too : making others do what you suggest with their money, because you know better. Show us that you can make more money producing a movie your way and then you can preach others about how to do business.

Hell, you constantly babble about "many" (no data provided) low-cost movies with spectacular effects and tremendous success, you constantly point at YouTube and millions watching, and yet you don't want to produce even a low cost movie, not to mention a $96M one. Come on, Mike, you yourself say it's not a matter of cost. Do produce a movie to show us you are right.

Oh, and one more question, just to see if at least you are honest with your own business: Companies whom you sell your personalized blogs with comments and analysis- are they freely allowed to republish and share them?

If you want data simply look at the history of economic markets. There's tons of data.
Handwaving again and again. But I can do it, too. See how easy it is:
"Mike, there are literally tons of data that you are wrong. Just look around".

It's basic economics that anyone can understand if they took their blinders off.
Just like the Opportunity Cost you fail to mention sistematically in all your examples. It's basic economics that a rational economic agent will not pick option X that gives him less profit than option Y. And it's also basic economics that just because your model can make a little profit (hell, even giving software for free and accepting donations makes monetary profit), this doesn't make it neither a better model, nor an inevitable one that everyone should adhere to.

Oh, and you still fail to answer any of the objections previously raised.

Price gets pushed to marginal costs in competitive markets. The way you make profit is by differentiating (i.e., adding unique value).

Oh great. So now tell me, how are Shakespearean book publishers differentiating among themselves? There is not one, but many many printed versions of Macbeth, all of them making profits. Many are printed on the very same paper and format, so certainly the fact that they are printed is not what is different. How's that?

I really feel sorry that you don't seem to be grasping this
Oh, please don't :-) There are too many people already feeling sorry for me not grasping their new versions of relativity, quantum mechanics, evolution, space exploration and what not.. I don't wanto to bear the burden of having more people feeling sorry for me...

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Alex, you're asking the wrong questions.
There are no wrong questions, only wrong answers.

Of course, there's no way to know in advance whether a particular business model will work
Great. See how it makes sense to ask questions? We now agree on the fact that there's no data, despite the constant handwaving "there's plenty of data - look around" coming from Mike. Now this is important because it turns things discussed here into mere hypotheses (as opposed to the pretended 'inevitable' status) that can be right or can be wrong.

This $96 million you're quoting is hogwash, too. If the revenue from movies goes down, the studios will find ways to make movies for less, or they'll go out of business.
Agreed up to this point. Or they will make less movies, or of less enjoyment quality (YouTube style) or they will take 7 years to make. (StarWreck style), so instead of 500 movies per year, we'll have the tenth part (if lucky). The question is : which scenario do we want?

It's up to the movie studios to figure out a business model that will work in the presence of almost costless distribution, not to artificially impose costs on something that by the current state of technology doesn't have any

Distribution is not costless, because in the process of that costless distribution you are breaking the law, as simple as that. You may like or not like the law, but that's a different issue.

It's may be costless for me to film you while you make love in your house and sell the movie on the net (and oh! - I'm not stealing any property - you still have everything. I just made a copy of your experience) but that doesn't mean that that should become the rule of the land or that it's up to you and not the government to provide the protection the law guarantees.

Two specific questions:

1) Do you agree with copyright law? It's in the constitution, by the way. I'm not speaking about DRMs or stuff. Just about the notion of intellectual property and copyright.

2) if breaking a law becomes almost trivial and costless, does this mean that the law should be dropped?

Re: Re: Re: Re: Make people actually *want* to buy

The initial construction is said to have been financed by funds raised with lotteries,
WTH??!?! Sorry, your sources are wrong. It was 'financed' by means of taking crops from peasants and slave work. I don't know if there was some kind of minor lottery at some point of time, but the bulk of it - certainly not.

But the point was that throughout the ages lotteries have shown to be very successful in raising funds.
Where does this follow from? Any specific (and accurate, as opposed to the Great Wall) examples of this? Throughout the ages, slave work has shown to be very successful.

Take this simplified example: let's say that you sell $10 tickets online, ....All the participants win the prize of downloading those 2,000 albums for free.Yes and you can. (copy the album)
So if I can copy an album for free when it comes out, why should I pay for a lottery that gives me as a prize.... the ability to download it for free? I may merely wait for others to pay for it, and then get it for free.

But like most other startups they are not open to small investors.
Ok, you don't have enough money. But you surely do have enough time. Are you willing to put your ideas to test by investing the free time in 5 years of your life making a low-budget movie?

I think there are many more who would like to invest, but they don't have the money to start a new business,
This is no excuse. I started my business with a big round zero in my account. And it is and has always been profitable, even during the dot.com crash.

Profits

This $96 million you're quoting is hogwash, too. If the revenue from movies goes down, the studios will find ways to make movies for less, or they'll go out of business.

Agreed up to this point. Or they will make less movies, or of less enjoyment quality (YouTube style) or they will take 7 years to make. (StarWreck style), so instead of 500 movies per year, we'll have the tenth part (if lucky). The question is : which scenario do we want?

I'm not sure why you are going from $96 million dollar movies to $96 dollar movies. Movies will still be able to make money from the cinema and merchandising. All they have to do is lower costs or find new creative ways to increase revenues that fall in line with the new reality. I don't see the quality of films changing significantly. In fact if the average cost of a film decreases we'll probably see more movies.

Here are just a few ideas off the top of my head to add to the ones that Mike suggested:

1. Unlike concerts or sporting events, the merchandise for a movie isn't located in the venue. Simply have cinemas with gift shops stocked with the currently showing movie's merchandise to take advantage of some impulse buyers. I'm not saying this will make tons more money but a few percentage points extra sales is worth something.

2. Salaries will obviously drop to normal levels. Contrary to some of the comments I've read, this won't mean you'll only get shitty actors in films. In fact you might actually get better actors. This is because those that drop out of the business will probably be those "movie stars" that are just in it for the money. But serious "actors" will most definitively continue as they see it as their career. They just won't be commanding million dollar salaries but more realistic thousand dollar salaries. Also, since the cost of a movie is lower, producers might be willing to try a greater variety of actors in their films since they are not gambling as much money. Therefore increased competition as the well of actors will increase.

3. Cut out the distribution layer. Producers should be taking advantage of the internet as well to get their movies to the cinemas. Who needs the sales pitch from the distributor's salesman when there should be all the resources the cinema owner needs online to decide which movies to get and then be able to download a digital version.

Again, these are only a few simple ideas but I do believe that innovation and restructuring is possible and inevitable as DRM is destined to be a failed attempt to hold back progress.

To the DRM increases value crowd

To the "DRM increases value for the producers" crowd please allow me to posit the following hypothetical use of DRM in another industry. Instead of using DRM to maintain an industry in it's current state, I'll use it to "augment" a current industry. If you do in fact believe that DRM adds value then you should find this use of DRM tenable.

Let's say the auto industry decides to use DRM. They decide that the buyer of the car should be the only one allowed to drive it. You have to sign a contract when you buy a car to this effect. A thumb print reader on the steering wheel enforces the contract. So once you buy the car you are no longer allowed to lend it to anybody else to drive (such as your wife or teenager).

So for the auto industry this is great. Families that share a car would now be forced to buy an extra car. Hell, they could even extract more "value" by charging a license transfer fee when somebody tries to sell their car. Eventually maybe even add thumb print readers to the passengers seats and charge a per seat license fee as well.

As some have characterized DRM, this scenario provides plenty of extra "value" for producers

The result is obvious. Consumers will overwhelmingly reject this because intrinsically they know that an artificial scarcity has been added. A black market for steering wheel replacements would be created overnight. The auto industry would sue consumers and ask politicians to create laws to punish consumers.

If you can defend this scenario then I can imagine you being pro DRM on digital media but otherwise you'd have to agree that DRM can't ever succeed.

Re: Re: Re: Re: Re: Make people actually *want* to

So if I can copy an album for free when it comes out, why should I pay for a lottery that gives me as a prize.... the ability to download it for free? I may merely wait for others to pay for it, and then get it for free.

Exactly! Why do people donate money to Wikipedia? Why do they spend their time writing/editing Wikipedia? Maybe it feels good to do it, to help others, with no strings attached. Maybe it is just because we think that when we like a service/product and we want it to sustain/grow, then it is just considered good manner to donate some money/time if you can. You don't have to go overboard and donate all your money/time. If enough users do this then it can work and then we don't need to do all the extra work to prevent others from using it. Just like when someone asks me to pass the salt, then I'm not going to try to make an agreement first that the other will at some point pass me the potatoes. I'm just going to do it and it is likely that the other will do something in return for me, even though he doesn't have to. It saves us a lot of work if we just cooperate voluntarily.

Just because it can go wrong, doesn't mean it will. Wikipedia could go wrong, but it hasn't so far. And when it doesn't go wrong it can generate a lot of free-content and demand for paid-content downloads might drop, because there are plenty of free alternatives to enjoy. As the free content gets more attention, and paid-content less attention, that might result in a drop of CD sales and ticket sales for the paid-content artists, against a rise for free-content artists. I would expect this to eat away at the top and feed at the bottom.

The long tail in the music business would just grow fatter/longer. There are plenty of (unsigned) artists that do not get a lot of publicity who will sign up for this, because for them it will be a better model. The free-content can be used to attract the music fans. Once you've got their attention you can use that to promote other artists and if they like it they might decide to invest as well. It doesn't require the current labels and their artists to adopt this model, but they could adopt it, I don't know if it would turn out better for them. I think that if we consumers were organized we could make them an offer that would be better for the artists and for the consumers. But with that sort of power we could also get an even better deal for ourselves at the cost of the artists. So if the consumers unite and the artists unite, then there would be a balance of power that could result in a fair deal between the two. But the the labels won't get to decide whether the consumers will unite (form a 'Union').

I don't know what will happen here, with personalized internet radio stations, and personal play lists. Maybe people like to pick everything themselves with a wide variety of choices (internet), but they might just like to be served with limited choices (traditional radio and tv) and content that is more mainstream. People probably like both, so there would be some sort of balance, but I expect the internet to take plenty of attention away from traditional channels.

So if getting attention becomes more and more difficult and more free-content alternatives become available, it might be better for them to switch to free-content as well. Maybe it is already a better option now. But the problem is that they can't try both options and see which one works best now, can we?

Re: Re: Re: Re: Re: Re: Make people actually *want

Isaac,

Exactly! Why do people donate money to Wikipedia? Why do they spend their time writing/editing Wikipedia? Maybe it feels good to do it, to help others

Ahem.. Weren't we speaking about lotteries? Are you proposing a completely different, donation-based system?
Or are you trying to say that because people donate to Wikipedia, this somehow implies they are going to participate in a lottery whose prize is something that they can get for free anyway? Doesn't seem to make much sense.

Isaac, this has already been discussed above, and nobody replied to the very simple numbers I offered. Current movie production is at about $50 Billion / year in the US only. Total charity donations for EVERYTHING in the US are $250 Billion. and they have been flat for about two years. It is simply not realistic to assume that charity donations can be increased to $300 Billion (a whopping 20% increase) to cover the costs of making the current level of movies. And that doesn't include neither the music nor the publishing sectors.

Of course, if you are willing to put up with 20 movies per year, as opposed to the current level of 500, then it may work.

But the problem is that they can't try both options and see which one works best now, can we?

All is very beautiful, now the only thing that remains is that if you believe this to work, why don't you take the risk? I asked you a very specific questionk, and I would like an answer:

even if you hive no money, you have time. Are you willing to put your ideas to test by investing the free time in 5 years of your life making a low-budget movie that uses the revenue methods you suggest?

Re: Re: Profits

Hi Alexander,
1) Do you agree with copyright law? I'm not asking about DRMs, but just about the notion of intellectual property and copyright.

IP is an artificially state mandated monopoly whose purpose is to foster the creation and dissemination of ideas. Since it is a monopoly the laws need to be balanced between the creator and the public. Hence fair use provisions and limited terms. The goals are good but if the laws are not balanced, can't achieve their stated goals, or are no longer needed then the laws need to be changed.

For example, does a term of the author's life + 70 years make sense (How is Elvis gonna create more works)? Are software patents the driving force between innovation in the software industry or a tool to be used against competitors. Here's a quote from Bill Gates himself on the matter:
"If people had understood how patents would be granted when most of today's ideas were invented and had taken out patents, the industry would be at a complete stand-still today."

2) if breaking a law becomes almost trivial and costless, does this mean that the law should be dropped?

Laws are made to serve a society. If a law doesn't do so then it should be rejected. In the case of downloading, millions of people are saying that they don't think they should pay for something who's marginal cost is close to zero.

3) These ideas you provide, are you willing to risk your own money and time on them?

This is an odd way to frame the problem. If you're in an industry you do what you need to do to survive. If movies, like any other industry, start making less money then they work on ways to return to profitability. Be it by lowering costs, delivering more competitive products, or adjust their market strategy. If you want an example of one of my ideas in action here it is:
http://ibtimes.com/articles/20070305/instant-films.htm

Most of the comments on this blog have been very intelligent but I'm dissapointed by the pro-DRM gang's pessimism. The internet has allowed any digitizable good to be instantly and freely available around the globe. This is an incredible achievement. Of course business models dependant on the old distribution methods are dead. Just as business models based on monks hand copying books where finished once the printing press came out. A business model is dead but and new ones will emerge. But the need to create art as has been the case throughout human history will continue.

Re: Re: Re: Re: Re: Re: Make people actually *want

Alexander,

As I have said the first time, it could start as a lottery and through experiments with changing the model we could see if it is possible to transfer away from a big money jackpot and prizes only for ticket holders, towards only non-scarce prizes available for download to everyone for free. At that point it can't classified as a lottery anymore and would mainly be a donation-based system with advertisement support. Whether such a transition could fully succeed we just have to wait and see. It is possible in theory, but it is also possible that it would fail. Wikipedia could also fail, because people can use it for free without ever making a donation, but it hasn't failed so far. So I can't claim that when people can get it for free, that they will still pay/donate, but neither can you claim that when people can get it for free, that they won't pay/donate anymore. Some will, some won't. Whether enough will still pay is what we could test in practice.

If it doesn't work then the target of 200 million in donations (20 million tickets) would not be reached and those who donated could lose faith and decide to get a refund after a while, and then no prizes would be made available for no one, because the 4,000 albums don't get recorded. That would be the price we pay for defecting in great numbers instead of cooperating, we all lose (compared to what could have been). Well we still have our $10 each and could try if we could get something for it with the same value as those 4,000 albums (content) would have been worth to us, which I think will be quite difficult. So next time those who defected the last time might decide to cooperate and donate $10.

As I have said before music is the most suitable candidate to start such a model. You keep bringing up movies, I'm talking about music. Once we can make it work for music we can see if we can make it work for e-Books, then small software applications, then movies, then larger software packages, maybe even research projects (knowledge). So if you have a problem with the numbers I gave for music and lotteries, we could discuss those.

And like I also said before I already invest in music, again not movies. I'm starting with music, not movies! I never said that someone should do what you said. Why don't I take the risk of starting my own company with this business model for music? Coming up with a business model, is something different than running a business. But I don't have to because there is already SellaBand which uses the model of free-content downloads and I invest time and money in them (after all they get interest on my deposits). I share my ideas with them and try to help to promote them. They have contacts in the music industry that I haven't got, they've got a head start, .... All in all, I think it is better to give SellaBand my support by investing some of my time and money in them, then to try to start something similar myself (And if you click on that link you will see that I'm not the only one). If they would let me buy shares in their company I would. So yes I'm backing this free-content model with my time and money, and I also donate to Wikipedia in case you wanted to know.

Re:

Companies don't "protect" their "content" - they restrict it. The "content" isn't in any danger - it isn't going to bombed, it isn't going to be sexually abused, it isn't going to slowly fade away. So why are you using this inappropriate and emotionally loaded word "protect"?

Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re:

*Every* scientific theory has a non ambiguous test. Which is yours?

Heh. I like how you ignored the data I did point you to, which is the entire history of the movie industry. But that's okay. When it comes to economic explanation, you don't set up tests like scientific experiments (for the most part), but you do look for proxy data, and there's plenty of that. Not, perhaps, for the movie industry, but I'll point you to another industry that has similar characteristics in terms of high upfront costs, huge risks, and a non-scarce good as the output: pharmaceuticals.

Now, many people insist that the pharmaceutical industry cannot function without patents... and so I believe it offers a very interesting analog to the movie industry.

So, to do a proper "test" as you want, you need to be able to compare two different cases. Economics is tricky, certainly, because there are numerous other variables that play into things, but you can clearly draw some conclusions.

In the case of pharmaceutical patents, if you assume that, like the movie industry, it needs gov't protectionism, then I'd ask you to explain the situation in Italy. Prior to 1978, its patent law did not cover pharmaceuticals, and Italy had a thriving pharmaceutical industry, with many different players, and the industry produced many new drugs (i.e., they weren't just "copying" from elsewhere). In fact, it was one of the largest exporters of drugs. That shows pretty good evidence that you don't need a government protectionist policy on high fixed cost products that produce non-scarce goods. You just need a good business model.

It's also somewhat (but not as) interesting to look at the Italian pharma industry post-1978. The domestic industry basically dried up. Big international pharma used patents to focus on monopolies and helped destroy what had been a thriving industry working on new drugs. Now there may have also been other factors involved in the post 1978 situation -- but the pre-1978 situation seems to work as an excellent example that these types of goods do not need protectionist policies.

Either way, like any economic theory the proof is very much in the pudding. It's in what happens based on the theories going forward. You can complain all you want that there's no business model for the movie industry going forward, but someone will prove you wrong -- and it's going to make life more difficult for you because you won't be prepared for it.

Oh, and one more question, just to see if at least you are honest with your own business: Companies whom you sell your personalized blogs with comments and analysis- are they freely allowed to republish and share them?

Yes. Our customers are free to do what they want with our content. Some of the contracts have contractual stipulations, but we often encourage our customers to spread the data far and wide. It's why we don't charge on a per seat basis as well -- as we think that's damaging.

You have to realize, our customers don't pay us for the content. They pay us to produce the content. It's an important distinction. Once we've produced the content, we really don't care what they do with it. But our contracts are for the ongoing production of that content. That is, they're paying us for what we're going to produce tomorrow, not what we produced yesterday.

And it's also basic economics that just because your model can make a little profit (hell, even giving software for free and accepting donations makes monetary profit), this doesn't make it neither a better model, nor an inevitable one that everyone should adhere to.

Well, that's not the economics I'm espousing. There are two points that I have made (and backed up, despite your claims that I have not). First is that the existing model is unsustainable -- and it's unsustainable for clearly obvious reasons, which is that there are ways to provide more value at lower costs, and the general nature of a competitive market will push your market to realize this truth. The second is that by recognizing how to bundle the scarce elements with non-scarce goods, there actually are ways to expand the pie. And for that, there are many historical examples. In just your own industry, the VCR is a perfect example of that very fact. Despite the industry's fear of the VCR (the "Boston Strangler to the movie industry"), what it did was increase value to customers by offering a new delivery mechanism. And the industry took the non-scarce content (movies) and wedded it to a scarce resource (VCR tapes, people's ability to go to the movies, desire to have entertainment in the home) and made money off of it.

Oh great. So now tell me, how are Shakespearean book publishers differentiating among themselves? There is not one, but many many printed versions of Macbeth, all of them making profits. Many are printed on the very same paper and format, so certainly the fact that they are printed is not what is different. How's that?

They tend to differentiate based on a variety of things, from the introductory text, to the footnotes, to the explanations, even to the versions of the play (some have cut out parts). On a superficial level, you could even claim that some differentiate based on cover art, completeness of the play, readability of the fonts, etc. etc. etc. The point is that there are nearly limitless ways to differentiate and sell one product over another. Some actually compete on name brand. People like buying a book from a certain publisher rather than another one -- and that right there is differentiation.

Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re:

Heh. I like how you ignored the data I did point you to, which is the entire history of the movie industry.

I like even more you definition of "data" which is basically "what I say *is* data". As I said, I can practice it too : There's a lot of data proving you wrong : just look around.
Application of "Mike's method for data mining" in science : "Here's my new gravitation theory. You want data? Just look at the history of physics! I'm right, don't you see it?"
"Mike's data mining method" for urban development
"We must build a huge mall instead of this park. Why? Look around at the history of cities. Don't you see it is the right thing?"

Are you going to provide some numbers at some point, or are you going to keep on with the handwaving?

Heh. I like how you ignored the data I did point you to, which is the entire history of the movie industry. But that's okay. When it comes to economic explanation, you don't set up tests like scientific experiments (for the most part), but you do look for proxy data, and there's plenty of that. Not, perhaps, for the movie industry

Hah.. Will you make up your mind? Is or isn't there data in the movie industry supporting your assertions?. You "show me to look at the history of music industry as data, but then there isn't data for the music industry... ". At least try to not to contradict yourself within a single paragraph

You can complain all you want that there's no business model for the movie industry going forward
BEEP! Straw man. Did I say that? I only said YOUR model is not going to work. I didn't say there is no alternative model. Does it hurt so much your ego to acknowledge that there are other alternatives apart from yours?

Companies whom you sell your personalized blogs with comments and analysis- are they freely allowed to republish and share them?

Yes.

Well, ok, at least you are honest with your own business, assuming that what you say is true.

You didn't answer about when are you going to produce your low-cost series of movies to show that your model works...

They tend to differentiate based on a variety of things, from the introductory text, to the footnotes, to the explanations, even to the versions of the play (some have cut out parts). On a superficial level, you could even claim that some differentiate based on cover art, completeness of the play, readability of the fonts, etc. etc. etc.

Holy cow!!!. So you are saying that, the example you yourself put forward as a proof that noncopyrighted content continues to sell, suddenly it turns out that publishers manage to sell books with a profit because they differentiate themselves by the part that IS copyrighted. Hmmm... curious conclusion, Mike....

Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re:

Heh. I like how you ignored the data I did point you to, which is the entire history of the movie industry.

I like even more you definition of "data" which is basically "what I say *is* data". As I said, I can practice it too : There's a lot of data proving you wrong : just look around.
Application of "Mike's method for data mining" in science : "Here's my new gravitation theory. You want data? Just look at the history of physics! I'm right, don't you see it?"
"Mike's data mining method" for urban development
"We must build a huge mall instead of this park. Why? Look around at the history of cities. Don't you see it is the right thing?"

Are you going to provide some numbers at some point, or are you going to keep on with the handwaving?

Heh. I like how you ignored the data I did point you to, which is the entire history of the movie industry. But that's okay. When it comes to economic explanation, you don't set up tests like scientific experiments (for the most part), but you do look for proxy data, and there's plenty of that. Not, perhaps, for the movie industry

Hah.. Will you make up your mind? Is or isn't there data in the movie industry supporting your assertions?. You "show me to look at the history of music industry as data, but then there isn't data for the music industry... ". At least try to not to contradict yourself within a single paragraph

You can complain all you want that there's no business model for the movie industry going forward
BEEP! Straw man. Did I say that? I only said YOUR model is not going to work. I didn't say there is no alternative model. Does it hurt so much your ego to acknowledge that there are other alternatives apart from yours?

Companies whom you sell your personalized blogs with comments and analysis- are they freely allowed to republish and share them?

Yes.

Well, ok, at least you are honest with your own business, assuming that what you say is true.

You didn't answer about when are you going to produce your low-cost series of movies to show that your model works...

They tend to differentiate based on a variety of things, from the introductory text, to the footnotes, to the explanations, even to the versions of the play (some have cut out parts). On a superficial level, you could even claim that some differentiate based on cover art, completeness of the play, readability of the fonts, etc. etc. etc.

Holy cow!!!. So you are saying that, the example you yourself put forward as a proof that noncopyrighted content continues to sell, suddenly it turns out that publishers manage to sell books with a profit because they differentiate themselves by the part that IS copyrighted. Hmmm... curious conclusion, Mike....

Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re

I point to lots of evidence and you come back to "that's not the right evidence."

It's the equivalent of me asking you to show me the data to prove that my model won't work. Go ahead. Prove it! Where's the data?!

While you're at it, can you also show me the data from before Henry Ford introduced the model T showing that it would sell well? Can you show me the data from before Microsoft introduced Windows that it would make Bill Gates the richest man in the world?

Come on, prove it!!

Hah.. Will you make up your mind? Is or isn't there data in the movie industry supporting your assertions?.

There is, and I gave it to you. Yet you weren't happy, so I went to a second type of proof, which is economic example by proxy. I'll not that you totally ignored the support given by that example, but that's not too surprising.

I only said YOUR model is not going to work. I didn't say there is no alternative model.

Does it hurt so much your ego to acknowledge that there are other alternatives apart from yours?

Yikes. I've been asking people to help come up with new models for the industry for years. It doesn't hurt my ego at all. I'm encouraging it. Why do you think we have these forums? Why do you think we keep discussing this? It's because we want people to come up with the ideas.

If you've picked up ANYTHING from this conversation you should realize that I don't think anyone "owns" ideas -- so why the hell would it hurt my ego if someone else came up with a better model?!? That's what I WANT! The whole point is that by sharing ideas you end up building something better. But, the problem is that your idea simply seems to be to lock stuff up -- and I've shown why that doesn't work and why that is a business model destined to fail.

You didn't answer about when are you going to produce your low-cost series of movies to show that your model works...

I didn't realize I had appointed you to our board of directors. When the time comes you'll see what we're doing.

Holy cow!!!. So you are saying that, the example you yourself put forward as a proof that noncopyrighted content continues to sell, suddenly it turns out that publishers manage to sell books with a profit because they differentiate themselves by the part that IS copyrighted. Hmmm... curious conclusion, Mike....

Okay. You really can't be that slow to pick this stuff up, can you? You're just trying to have fun now, right? I never said anything about copyright. Nothing in what I described requires copyright. The fact that it is covered by copyright is meaningless to the model (which I had already pointed out).

You have a funny way of arguing, Alexander, and it doesn't reflect well on you. I point out a very specific example to highlight a single point A. Then you respond by screaming "but that doesn't explain point B!!!!!!" So then I go and explain point B with a specific example that explains point B, and you respond "but that doesn't explain point A!!!!!"

Take all the different examples and put them together, and the model becomes quite clear. I apologize if I haven't been able to express that clearly to you.

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box office receipts are up -- thanks mainly to people going to movies in countries most well known for lax intellectual property protection.

Why? Perhaps it's because people want to actually "go out" to the movies, which is exactly the model we discussed. Make the experience good (i.e., good movies, good environment, fun experience) and people go to the movies -- even without DRM and with widespread unauthorized copies.

Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re

While you're at it, can you also show me the data from before Henry Ford introduced the model T showing that it would sell well? Can you show me the data from before Microsoft introduced Windows that it would make Bill Gates the richest man in the world?

Why should i? Is there any relationship between what they two did and what you are saying? If there was data, would this prove anything? No. If there wasn't data, would this prove anything? No.

People take risks (with or without data) and either fail or succeed. Some succeed (Ford, Bill Gates) some (the majority) don't. And this is so obvious that it is a tautology. And it doesn't prove neither that your model or that any particular model will work.

The fact that you have to resort to some irrelevant, hand-picked cases from the past that bear no relationship to your statements only shows how baseless your claims are.

Sorry, but science does not work that way, just in case you weren't listening in the university. It's not the duty of the scientific community (or mine, in particular) to prove wrong every crackpot scientific theory that comes along. It's the duty of their authors to prove it correct. If someone comes along with a new theory of relativity, its his duty to prove it, not my duty to disprove it. Same with your novel economic models.

But hey, let's try.
First, we use data obtained using "Mike's data method":
Take the examples of Ford, Bill Gates or the entire music industry, for eample.
Ok, now we use "Mike's logical reasoning": From the above data, it follows that you are wrong. QED.

I'd ask you to explain the situation in Italy. Prior to 1978, its patent law ....Italian pharma industry post-1978. The domestic industry basically dried up.

Do you have any data or research for this?. DON'T WORRY I will provide the data from which you derive your claims, hoping you that in the future, you'll know what "data" means and provide data for your claims, which are so far baseless.
AFAIK, this claim comes from, for example, http://www.dklevine.com/papers/ip.ch.9.m1004.pdf

Except that Italy wasn't producing new drugs, it was producing new molecular entities. Which is not quite the same. And what is a NME?
Well, the FDA has the anwer:

So NMEs are certainly not drugs. I can,too, produce NMEs at incredible rate in my garage. But to turn a NME into a pharmaceitual drug, these NMEs need to be studied in order to know how they behave within the human body, whether there are any counterindications, whether they can be applied to specific risk groups and finally, they need to be approved by the oversight agency before being deployed industrially. And no, Italy was not the top producer of drugs by any means.
Want more research?

So it would be helpful if you stop dragging that disproved and worn-out nonexample, and provide some meaningful data instead.

If you've picked up ANYTHING from this conversation you should realize that I don't think anyone "owns" ideas
Regardless of what you think, psychology has long ago proved (even experimentally) that people ARE attached to the ideas they have created, and that's why they will go to huge lengths before admitting that their ideas maybe wrong.

Which is your case, by the way. You have twice failed to anwser a very simple question that every scientist is taught to ask himself: What experiment proves you wrong? Every scientific theory is falsifiable. Is your theory scientific? Then provide a non ambiguous experiment or put up and admit it is not scientific. I also asked you if you contemplated the possibility of being wrong, and you dindn't answer such an obvious question. Unlike you, I have no trouble admitting that I may be wrong. And when you say something that makes sense (like the issue of copyrights in your business), I have no trouble acknowledging it. It would be useful if you, too, learnt to examine facts on their merits alone.

I didn't realize I had appointed you to our board of directors. When the time comes you'll see what we're doing.

I never said anything about copyright. Nothing in what I described requires copyright. The fact that it is covered by copyright is meaningless to the model (which I had already pointed out).

Of course you didn't say it. I said it, hoping that you wouldn't need the intermediate steps to finish the reasoning. But it seems that you do need it explained in detail. Ok, I'll refresh your basic economic lessons, for free:

Market drives prices to MC, but not unconditionally. If you undust your basic economics books, this only happens under some circumstances : in a free market that does not have price-control systems and when there are no significant entry barriers (If you think
because in the absence of price-control systems and entry barriers, any competitor can sell the same thing that I sell, accepting less profit and therefore charging less. But obviously book sellers are making a profit, and since Macbeth has existed for about 400 years, it's certainly not that the market hasn't had time to drive prices to MC. So how's that? Obviously one of the premises is violated. What stops a competitor from doing what the Price=MC hypothesis says? copryight He cannot sell the same book that I'm selling, because I own the copyrights of the introduction text, footnotes, cover art and illustrations and all these things you mentioned as differentiating factors.

So take your choice: Either accept copyright is the price control system that allows Shakespearean book sellers to continue to sell at a profit OR reject the theory that market drives prices to MC.

Oh, and here's some data for you:

FINALLY! Now you REALLY, INCREDIBLY, SURPRISINGLY are providing A piece of data (because both links point ultimately to the same article). WOW.

But before commenting on the data you provide, I'm confused. I provided some MPAA data previously, and you said: "Pointing me to MPAA data is pretty funny. You realize how often that data has been destroyed? It's so wrong it's not even worth commenting on".

Now it's you the one who's pointing to MPAA data... How's that? Do you only use the data that suits your thesis? (By the way, crackpots also do it : from all the available data, they'll pick what it suits them, and everything else is a conspiration or is wrong just because they say so).

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Why should i? Is there any relationship between what they two did and what you are saying? If there was data, would this prove anything? No. If there wasn't data, would this prove anything? No.

The point is simple. In describing economic business models, there isn't data before the business model has been put in place.

People take risks (with or without data) and either fail or succeed. Some succeed (Ford, Bill Gates) some (the majority) don't. And this is so obvious that it is a tautology. And it doesn't prove neither that your model or that any particular model will work.

Yikes. I didn't say it proved my model (here's that "it doesn't prove B!!!" again). I simply pointed out why it's silly to demand data on a specific instance of a business model that hasn't been used yet.

Based on your reasoning, no one should ever try a new business model, because there's no proof.

But, let me explain a little economics here. Because economics involves a huge number of variables, economists don't do "proofs" in the typical scientific sense like you're discussing. What they do is work out the basic rules of economics, looking at the different variables. From that, however, it is often possible to see why certain models work and others don't. It's not about the data, but about the economics -- and the economics is solid. So stop worrying about the data and start looking at the economics.

Except that Italy wasn't producing new drugs, it was producing new molecular entities. Which is not quite the same.

You're really stretching here. You do understand what proxy data is, right? You do understand why it's used, right? I'm not going to explain that to you from scratch.

Sarcastic as we both can be, it remains a fact that you are not doing or willing to do what you are preaching about.

Er. That's not true. As I pointed out, I am doing exactly what I'm preaching about -- just not yet in the movie industry.

Market drives prices to MC, but not unconditionally. If you undust your basic economics books, this only happens under some circumstances : in a free market that does not have price-control systems and when there are no significant entry barriers (If you think
because in the absence of price-control systems and entry barriers, any competitor can sell the same thing that I sell, accepting less profit and therefore charging less.

Yeah, I think you might need to dust off a slightly more advanced economics text, because yours is a bit out-dated and not really accurate. It does not need price-control or significant barriers to entry. What it needs is constant differentiation -- which some people call "competitive monopolies" or others call "constant innovation." Basically, you keep on differentiating, and that can include both real and perceived differences, such as brand or that "it looks pretty" or whatever.

Look at the example of the 9/11 commission report. It was a huge best seller, but it wasn't under copyright. Anyone could publish it, but the first company that the gov't agreed to let publish it was the overwehlming leader in the market. There were no barriers to entry. There were no price controls. There was only a brand differentiation held by being first.

But obviously book sellers are making a profit, and since Macbeth has existed for about 400 years, it's certainly not that the market hasn't had time to drive prices to MC. So how's that? Obviously one of the premises is violated.

Again, you need to brush up on your economics. It's not copyright that's the issue here. You seem to have misunderstood the time factor in economics. What keeps products from matching marginal cost is that you keep innovating and building up that differntiation (again, real or perceived), and it's that continual change and innovation that helps you keep your price above marginal cost. That has nothing to do with copyright

So take your choice: Either accept copyright is the price control system that allows Shakespearean book sellers to continue to sell at a profit OR reject the theory that market drives prices to MC.

Again, you need to go back to the economics books again, because you've left out the option of what's really happening.

So help me with this one: Is MPAA data valid or not?

MPAA data on things like attendance and box office take is valid data. MPAA data on things like "losses due to piracy" are what I was talking about as being bogus.

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1) Alexander demands data or research on A
2) Mike says (literally) "Look at the whole music industry"
3) Alexander again demands data or research on A
4) Mike says (literally) "Look at what Ford did".
5) Alxxander again demands data or research on A
6) Mike says (literally) "Look at what Bill Gates did"
7) ...
and finally we come (today) to:

N) Mike (finally) says: there isn't data. before the business model has been put in place.

The point is simple. In describing economic business models, there isn't data before the business model has been put in place.

Great. So you finally agree that you have not been providing data, because there is none. Good for you. It took you quite a long to reach to that conclusion, but it's welcome that you are unable to provide data because there is no data.

Ok, do we now agree that there is no data for your business model?

because economics involves a huge number of variables, economists don't do "proofs" in the typical scientific sense like you're discussing.

Oh, I guess it's you the one who should update your books... Seems you've never heard about multivariate statistical analysis. There are many ways to examine correlation in a multivariate environment, to prove or disprove statistical hypotheses, and it is done routinely. No wonder you systematically fail to provide any data : you haven't noticed economics has changed quite a lot since the age of "blah blah" economic theories.

You're really stretching here
Well, if mentioning that there's a veeery veeery small difference between "inventing random new molecules" and "inventing drugs that actually do something" is "stretching", then Ok, I'm stretching.

. You do understand what proxy data is, right? You do understand why it's used, right? I'm not going to explain that to you from scratch.

Oh please do. I'm specially curious to see how you justify the usage of proxy data when the actual data of the industry is available :-)

But I doubt that you know what you are talking about, giving your previous economic innovations that "fixed costs don't matter and are not factored into price" and "economists don't do "proofs" in the typical scientific sense", among others.

Genunie crackpots will keep their pet examples no matter how many times they are disproved. Bermuda Triangle fans will still parrot that Flight 19 has not been found, TV images nonwithstanding.

Basically, you keep on differentiating, and that can include both real and perceived differences, such as brand or that "it looks pretty" or whatever..

Sure Mike, Sure. So why should I, publisher A, invest in making something different instead of just copying publisher's B book, which already is being sold with profit?

And how's that there hasn't been a single point in time during which I could buy, say a Pentium III micorprocessor at margin cost price? Why the market hasn't driven its price to MC. After all, it hasn't "differentiated" itself. A PIII is a PIII.

Look at the example of the 9/11 commission report. It was a huge best seller, but it wasn't under copyright. Anyone could publish it, but the first company that the gov't agreed to let publish it was the overwehlming leader in the market. There were no barriers to entry.

It seems you have your facts a bit wrong, here. Not anyone could publish it. There were many requests, and the government approved just one, and gave the report to them in advance before posting in on the web. From the New York Times : "The choice of Norton has created consternation among publishing executives whose companies were turned down for the prestigious and potentially lucrative assignment. Those executives said they could not recall a similar arrangement in which a high-profile federal commission turned over the work of its investigators to an outside publisher before public release. Under the agreement, Norton will make no payment to the commission and will be allowed to keep any profits."

So no, Mike, you are wrong again. Having the government remove all of your competitors and select only you is quite an entry barrier. So don't give me nonsensical examples about how a government-sanctioned monopoly is an example that "noncopyrighted works make profit.". What's next? An example of how the single company authorized to publish a law in print makes a profit?

I pointed out, I am doing exactly what I'm preaching about -- just not yet in the movie industry.

You are preaching about what will work in the movie industry, and you are not doing it, even as you say it doesn't require huge budgets. No matter how you try to spin it, it remains a fact.

So help me with this one: Is MPAA data valid or not?

MPAA data on things like attendance and box office take is valid data. MPAA data on things like "losses due to piracy" are what I was talking about as being bogus.

do not mention a single time the word "piracy" or "pirate" (except as part of the "Pirates of the caribean" :-). Actually, they don't deal with that issue at all.

Like a genunie crackpot caught in a contradiction, now you try now to spin your way out of the corner instead of admitting you didn't even bother to check the data. Just the seeing the words MPAA caused you to dismiss the data, because everything the MPAA says is false. False, until they post something that suits your theories, that is.

So try again. Why did you dismiss the MPAA data I provided if it wasn't related to piracy?

PD : You have now failed three times to anwser a very simple question that every scientist is taught to ask himself: What experiment proves you wrong? Every scientific theory is falsifiable. Is your theory scientific? Then provide a non ambiguous experiment or put up and admit it is not scientific. I also asked you if you contemplated the possibility of being wrong, and you dindn't answer such an obvious question.

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Oh, I guess it's you the one who should update your books... Seems you've never heard about multivariate statistical analysis.

Heh. I know my way around statistics as well. But, even using statistical analysis, you can't control for all variables. That's all I meant. You absolutely can do plenty of stuff in econometrics to prove things, but again, you're asking for proof of a business model that doesn't specifically exist.

But, let's be clear here. As I've pointed out, this isn't *really* a new business model. It's just a new understanding of their existing business model -- which is recognizing that you've never been selling "content" but the scarce goods around the content.

Sure Mike, Sure. So why should I, publisher A, invest in making something different instead of just copying publisher's B book, which already is being sold with profit?

Um. Because making something different allows you to sell more, rather than just copying which doesn't add any additional value.

And how's that there hasn't been a single point in time during which I could buy, say a Pentium III micorprocessor at margin cost price?

Now you're just trying to play games, right? You do understand what a competitive market is? But, again, you're back to some totally random tangent.

So no, Mike, you are wrong again. Having the government remove all of your competitors and select only you is quite an entry barrier.

No, Alexander, you are wrong and you're back to your old "prove A, Mike proves A, Alexander says THAT DOESN'T PROVE B!" arguments.

You said the only differentiation was copyright.

I pointed out that copyright need not be the only differentiation.

And you respond that there's some other differentation -- which IS *MY* point. There can always be differentiation, and it need not be copyright -- and in fact, shouldnt' be copyright.

In this example, the gov't did give it exclusively to one publisher... but there was no copyright. So others were able to quickly copy it. That's not a barrier to entry. So, yes, there was a differentiation, but it WASN'T COPYRIGHT -- which is what you insisted was needed. I was simply proving that the differentiation doesn't need to be copyright.

I proved that. And you claim I didn't prove some other thing. It's what you've done this entire debate and it's a total waste of time.

In the meantime, I'll note that in your latest tangent obsession, you fail to explain how movie sales are increasing in places where piracy is a major issue.

I'm going to stop following this thread now. Normally these debates are informative, and continue to help me and others learn and expand our knowledge. The fact that you keep going around in circles with your tangential arguing is a waste of my time. You want proof, and the way you're going to get proof is when the successful business models show up and your left in the cold. Based on that, my time is better spent proving the business model in the real world then repeatedly pointing out why you ask for one thing and then yell at me about something totally different when I respond to your one thing.

Heh. I know my way around statistics as well. But, even using statistical analysis, you can't control for all variables.

Heh. You "know your way"?. Obviously you don't. If you did, you'd know that in general you don't need to control ALL variables, just the ones you are trying to check for correlation. Do you know what correlation is? What statistical proof is, as opposed to deductive proof? :-) I can recommend you some books if you want to learn...

Um. Because making something different allows you to sell more
Of course Mike, of course. Those who produce verbatim copies of works of art (e.g: paintings) aren't earning a dime, poor beings. They should by all means alter Van Gogh's works, so that they differentiate themselves from him and sell more, Mike dixit
And of course, the original author "sells more" of his unique work of art than reproducers :-) :-)
You should write a book with your theories, Mike. I'd like to show it to my students...

There's absolutely no correlation between "amount of difference" and "amount of sales". A verbatim copy may sell more than an original, and a vastly enhanced copy may sell less that the original. So close, but no cigar.

And how's that there hasn't been a single point in time during which I could buy, say a Pentium III micorprocessor at margin cost price?

You do understand what a competitive market is? But, again, you're back to some totally random tangent.

Oh, please do enlighten me as to why the semiconductor market is not a competitive market. That's also a new economic discovery of yours...Aiming for the Nobel Prize, Mike, with so many innovations in economics?

In the meantime, I'll note that in your latest tangent obsession, you fail to explain how movie sales are increasing in places where piracy is a major issue.

Well, give me data (i.e. : numbers, not words.) for the above statement of yours and show that there's a statistical correlation between "amount of piracy" and "sales increase" (so that it's not a mere coincidence that has happened somewhere) and I'd be glad to comply. Ah, when providing data, remember that MPAA data is not valid, as per your own words. Have this in mind when you give me the numbers.

In the meanwhile, and given the borken and biased examples you've been providing, I don't have to believe your assertion just because you say its true.

By the way, remember that it's not my duty to prove you wrong. You are the one with the new-but-not-really-new business model, you are the one to prove it right.

Oh, and you failed to answer my question about why did you dismiss as "not worthy of comment" my MPAA data which didn't bear any relation to piracy, while you yourself pointed to MPAA data.

And you failed to answer to the issue of the Italian pharmaceutal industry or to any of the research studies I provided. You can accept the example is wrong and stop using it, or act like a crackpot and dismiss all evidence and keep dragging it along, much to your discredit.

You have now failed FOUR times to anwser a very simple question that every scientist is taught to ask himself: What experiment proves you wrong? Every scientific theory is falsifiable. Is your theory scientific? Then provide a non ambiguous experiment or put up and admit it is not scientific. I also asked you if you contemplated the possibility of being wrong, and you dindn't answer such an obvious question.

Re: DRM

I'd like to know if you think DRM technology will ever actually succeed in controlling all digital media or will rampant piracy continue unabated.

Unlike the trend here, I'll provide a clear answer: I do not think DRM will succeed. I do not think it is necessary, either. But I do not think free content will be the model, either. What do I think? Three things :

1) That content will have a cost so low that pirating it won't be worth the risk of getting caught. You buy the "right to view the movie" for $2 to $6 for example. And you can execute this right as many times as you want, in any format you want : streamed to your computer, wified to your portable console, in a theatre (for a much reduced additional cost, if any. Just present the proof of purchase. They'll sort revenue distribution among themselves afterwards), downloadable as a burnable DVD with cover art, etc.

2) More content will be produced for display technologies that are not accessible to home users: IMAX, 3D, Motion cinema, Hemispheric cinema, Interactive cinema, Immersive Virtual Reality, and new technologies yet to arrive (project Brainstorm, anyone?). Which was long due.

BTW, I'd like also a clear-cut answer to the 2nd and 3rd question I aksed you :-).

2) if breaking a law becomes almost trivial and costless, does this mean that the law should be dropped?

You answered about what the role of laws is, but I didn't ask about how laws are made or whom they serve. I asked ...(paste (2) here )...

3) These ideas you provide, are you willing to risk your own money and time on them?

You didn't provide an answer. It was a question related to you yourself personally.

BTW, I saw the presentation of this guy, but I'm afraid he's got quite a few things messed up:

I'm surprised is that noone asked him a very basic question: A cable network ad costs what it costs not because the show is funny according to someone's subjective oppinion, but because of the measurable audience it has. It's easy to say a posteriori that an Ad on Star Wars is worth so an so. How are you going to know the audience size some free content will have, in order to make the advertiser pay for a tiny logo on it?

Also, comparing a logo with a 30 sec ad is nonsense, and that's another thing noone asked. Even if the 30 sec ad costs the same and reaches only 1/10th of the audience, it is still better. The aim of an advertisment is not "to reach audience". It is, basically, to make sales. Everything else (call it brand identity, brand awareness, etc. revolves around the ultimate aim of sellig you something).

Thus, conversion rate times audience is the important factor, not audience alone. An ad with a conversion rate of 0 will drive its company to bakrpucy even if every single critter in the universe saw it.

And what's the conversion rate of a logo? How many kids are going to ask their dads for a McDonalds when seeing a 30' McDonalds ad in the middle of a movie on Disney TV? I can bet any amount that they will be orders of magnitude more than the kids asking for a McDonalds just because of some tiny logo on a movie, which by the way the brain will filter after a while, just as we don't notice cable TV logos either. This is not hypothesis. It's a proven psychological fact. Or brains are trained by evolution to pay attention to changing things, not to constant impulses.

So there cannot be any sort of comparison between a 30', or a 15' ad and a wimpy logo.

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Alex: What a long thread! However you seem to totally be missing the point of mike's arguments (willfully or not). The proof he's pointing to is evident throughout history: basic economics. As markets become more competitive price is pushed towards marginal cost. Going above marginal cost requires some kind of differentiations. All mike was saying was that there are ways to differentiate, even if MC is zero -- and that differentiation need not involve artificial barriers. The overall benefit, however, is that as products get cheaper, there's a larger market (a larger pie) from which to make money.

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The proof he's pointing to is evident throughout history: basic economics
Yeah, well, whatever you say.

As markets become more competitive price is pushed towards marginal cost. Going above marginal cost requires some kind of differentiations.

There are many things that affect whether price is or is not pushed towards MC. Coke has stayed the same for a century, and its price is nowhere near the MC. Nor is the Big Mac, introduced in 1968. Bayer's Aspirin has been with us for 120 years, and its price is also nowhere near the MC. What about Malboro cigarettes? Budweiser beer? Kleenex towels? Swarovski glass? Smirnoff vodka? Pentium processors? For god's sake, even a 20+ year old Z80 processor is above MC. Not to speak about raw materials - Petroleum? Natural Gas? Gold? Marble? And what about some animal products? Ivory? Walrus skin? Marten Fur?
The MC of an electronic ad slot should be 0 in Mike's world. How's that Google ads aren't free? Why an eBay listing isn't free?

Every and each of these products is quite above the MC, for a variety of reasons, most of them not being the lack of competition.

So sorry to be blunt, but please stop repeating the same mantras over and over and just learn something about economics first, and then start lecturing others about what is basic and what is not. Learn about opportunity costs. About entry and exit barriers. About how nonperfect markets work. About behavioural economics. About political economy and socioeconomic (because it just happens that economics isn't done by mindless robots in vacuum). About statistical proofs. And then come back and lecture me about "basic economics". If you (generically speaking) want to be taken seriously, your claims should be a bit more substantiated than just repeating over and over "I'm right. It's basic economics".

Or if you prefer, don't learn anything and instead just do it and show that it really works, investing your own time and your own money. If everything is so easy, how's that the world isn't filled with zero-budget, free-content movie-producing billionaries? Instead, what we have is just a couple of movies, one of them has not even met a 5% of its funding goal for 1 year, and the other that took 7 years to make.

Also, the fact that it costs 0 to break a law does not mean that MC=0. The fact that I can film you in your house making love and sell it as amateur porn does not mean that porn or your privacy has MC=0.

Perhaps it wasn't well worded, but history is on mike's side.
Well, every single crackpot I've met claims that history is on his side. As Carl Sagan once put it "They laughed at Copernicus, the laughed at Galileo, and they also laughed at Bozo the Clown".

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There are many things that affect whether price is or is not pushed towards MC. Coke has stayed the same for a century, and its price is nowhere near the MC. Nor is the Big Mac, introduced in 1968. Bayer's Aspirin has been with us for 120 years, and its price is also nowhere near the MC. What about Malboro cigarettes? Budweiser beer? Kleenex towels? Swarovski glass? Smirnoff vodka? Pentium processors? For god's sake, even a 20+ year old Z80 processor is above MC. Not to speak about raw materials - Petroleum? Natural Gas? Gold? Marble? And what about some animal products? Ivory? Walrus skin? Marten Fur?

None of those are priced at marginal cost because they differentiated themselves, which is the ENTIRE point of this series. In each case you named a BRAND. It's that BRAND that helps differentiate them. That's why people buy BAYER aspirin. Because the brand has value and the brand is how they differentiate themselves. The whole point of this series is that's what happens. You do something to differentiate and that's how you price above marginal cost.

So, please don't give us a lecture on basic economics, when you don't seem to recognize what a brand is or even recognize how differentiation works.

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None of those are priced at marginal cost because they differentiated themselves, which is the ENTIRE point of this series. In each case you named a BRAND. It's that BRAND that helps differentiate them. That's why people buy BAYER aspirin.

Oh, our favourite ecnomist innovator has spoken, and has finally acknowledged that Intellectual Property (trademarks and copyright) can be a differentiating factor. Glad that you found my example illuminating. What a notable progress, Mike, given that just a few messages above you were claiming that IP was irrelevant regarding the process:

It's not copyright that's the issue here. ...What keeps products from matching marginal cost is that you keep innovating and building up that differntiation (again, real or perceived), and it's that continual change and innovation that helps you keep your price above marginal cost. That has nothing to do with copyright

So "IP does not have anything to do with prices NOT going to MC", but now suddenly it turns out that "IP does have something to do with prices NOT going to MC". And both are basic Mike-o-nomics of course.

By the way:
You have now failed FIVE times to anwser a very simple question that every scientist is taught to ask himself: What experiment proves you wrong? Every scientific theory is falsifiable. Is your theory scientific? Then provide a non ambiguous experiment or put up and admit it is not scientific. I also asked you if you contemplated the possibility of being wrong, and you dindn't answer such an obvious question.

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Oh, our favourite ecnomist innovator has spoken, and has finally acknowledged that Intellectual Property (trademarks and copyright) can be a differentiating factor. Glad that you found my example illuminating. What a notable progress, Mike, given that just a few messages above you were claiming that IP was irrelevant regarding the process:

Do not twist my words. I have ALWAYS made it clear that TRADEMARK is important -- not copyright. And I have explained why as well. TRADEMARK is not really intellectual property law. It's a consumer protection law to prevent buyers from being tricked. So I have no problem with trademarks -- which I do not consider to be IP.

I have always made that clear. Your inability to understand it isn't my problem -- but my position remains consistent.

You have now failed FIVE times to anwser a very simple question that every scientist is taught to ask himself: What experiment proves you wrong?

No, Alexander, I already explained why that question was irrelevant. It's not a scientific experiment. It's an economic question -- and the economics (and reality) will back it up. The "experiment" is happening out there in real life every day.

As I said the first time you asked, your question is the equivalent of Henry Ford saying he won't move to an assembly line because there's no "scientific proof" as to why it's better than piecemeal production.

It's not about scientific proof, it's about basic economic truths and efficiency -- and the proof is happening every day.

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Do not twist my words
I think it's very difficult to twist someone else's words by quoting him literally :-)

TRADEMARK is not really intellectual property law. It's a consumer protection law to prevent buyers from being tricked. So I have no problem with trademarks -- which I do not consider to be IP.
Is this also basic economics? :-) But at least it is a progress. You are not in favour of dropping the concept of IP. Yes, yes, I know your Mikctionary does not define trademark as being IP, but I'm referring to the generally used (i..e : World minus Mike) definition of IP.

You have now failed FIVE times to anwser a very simple question that every scientist is taught to ask himself: What experiment proves you wrong?

No, Alexander, I already explained why that question was irrelevant. It's not a scientific experiment. It's an economic question -- and the economics (and reality) will back it up. .

Blah blah blah....Do you imagine scientific journals filled with pages and pages of stuff like the ones you say, instead of proofs? That's what distinguishes the scientific (and economics AFAIK is a science, now about Mikeonomics I don't know) discourse from the crackpot one.
The fact that something is happening does not imply it happens for the reasons you say, and even if this were the case, it doesn't mean that a scientifc theory is not falsifiable. Euclid had a falsifiable test about his geometry axioms for about 2 millenia, and reality was showing him to be correct until Lobachevsky came and showed that he was wrong in the general case and then Einstein showed that there was more reality than Euclid was seeing.

So, you have now failed SIX times to anwser a very simple question that every scientist is taught to ask himself: What experiment proves you wrong? Every scientific theory is falsifiable. Is your theory scientific? Then provide a non ambiguous experiment or put up and admit it is not scientific. I also asked you if you contemplated the possibility of being wrong, and you dindn't answer such an obvious question.

The "experiment" is happening out there in real life every day
It must have escaped to me that the world is filled with low cost free, studio-quality movies which are making lots of profits ....

As I said the first time you asked, your question is the equivalent of Henry Ford saying he won't move to an assembly line because there's no "scientific proof" as to why it's better than piecemeal production.

And as I replied the first time you said that, the only problem with that analogy is that it is irrelevant. Henry Ford did something for what there was no data and succeeded, while Joe Bankrupt did something for which there was no data and went bankrupt. Conclusions? None.

And the problem with that analogy is that Henry Ford did it himself, while you are preaching to others to do it. Preach when you make a couple of movies.

but my position remains consistent.
Your position remains constant, which is somewhat different from consistent :-) Since it seems that - despite previous assertions - you are still monitoring this thread (hmmm.. consistent, did you say?) there are a few pending bits:

You failed (three times now) to answer my question about why did you dismiss as "not worthy of comment" my MPAA data which didn't bear any relation to piracy, while you yourself pointed to MPAA data.

And you failed to answer (two times now) to the issue of the Italian pharmaceutal industry or to any of the research studies I provided. You can accept the example is wrong and stop using it, or act like a crackpot and dismiss all evidence and keep dragging it along, much to your discredit.

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I think it's very difficult to twist someone else's words by quoting him literally :-)

You said trademark was the same as copyright. That's simply not true. Trademark is a consumer protection issue, which is very different from intellectual property. I'll note that you don't bother to actually respond to the ways in which trademark is different from copyright and patents and why that matters...

The fact that something is happening does not imply it happens for the reasons you say, and even if this were the case, it doesn't mean that a scientifc theory is not falsifiable. Euclid had a falsifiable test about his geometry axioms for about 2 millenia, and reality was showing him to be correct until Lobachevsky came and showed that he was wrong in the general case and then Einstein showed that there was more reality than Euclid was seeing.

I'll try once again: either you believe what economics proves or you don't. Do you believe in free market efficiencies or not? What "scientific proof" do you set up to disprove free market economics? Or what scientific proof do you set up to prove free market economics?

Henry Ford did something for what there was no data and succeeded, while Joe Bankrupt did something for which there was no data and went bankrupt. Conclusions? None.

Ah, but that's not true. What we ARE able to do is look at the basic economics again (I know you hate to do so, but it's how things work). Ford succeeded, in part, because the assembly line allowed him to be more efficient, producing decent automobiles at lower prices and getting much greater economies of scale. On top of that, he used excellent marketing techniques to build up additional brand value.

That's an economic lesson that's pretty clear. If you can make something more efficiently economically, while using something else (such as brand) to increase value, you can do quite well against the competition.

It's not new at all. I've said so from the beginning. If you want to look at the movie industry, just look at Marcus Loew's famous statement: "We sell tickets to theaters, not movies." He got it. From the very beginning the movie industry has never sold "movies". It's always sold something else bundled with the movies. And that's all I've been saying from the beginning, is that they now seem to think that they're actually selling the movies, and that's a problem, because they've forgotten about all the things bundled with it.

Economics is predictive. All this is saying is that the business models put forth make it clear where the pressure is going to come from. Someone will adopt this model (some already are getting close) and when it succeeds, the old guard will have to rush to catch up.

And the problem with that analogy is that Henry Ford did it himself, while you are preaching to others to do it. Preach when you make a couple of movies.

I already made it clear that I am doing the same thing in other industries. I'm sorry that you want to stick your head in the sand and pretend it doesn't apply to other industries, but the economics go across the board.

You failed (three times now) to answer my question about why did you dismiss as "not worthy of comment" my MPAA data which didn't bear any relation to piracy, while you yourself pointed to MPAA data.

Actually, I did answer that question, but once again, you keep switching which question you want people to answer so you can pretend I don't answer it. Scroll up, you'll find your answer (or, seeing as how you ignore it, I guess you won't). Doesn't change the fact that I answered it already.

And you failed to answer (two times now) to the issue of the Italian pharmaceutal industry or to any of the research studies I provided. You can accept the example is wrong and stop using it, or act like a crackpot and dismiss all evidence and keep dragging it along, much to your discredit.

Well, there wasn't much to respond to in your critique of the Italian pharmacy study. You just insisted it couldn't be right because it used new molecular entities rather than drugs -- and made some ridiculous comment about how you could come up with an "incredible number" of new molecular compounds yourself. Considering the fact that in a 20 year period the entire world only came up with a little over 1000 such entities, I find that difficult to believe.

Do you believe the Italian drug companies were coming up with NMEs for the hell of it? Especially considering that there was no patent protection, they were doing so solely for one reason: to make drugs that could be sold in the market.

And then you point to a second piece of "research" that uses tautological proof to make it's point. It defines "innovation" as the number of patents issued. If you're going to complain that NMEs are not a decent proxy, you can hardly use the number of patents as a better proxy -- especially given the change in patent law!

The point remains clear and supports my position. There *was* plenty of effort put into drug discovery without patents. By your own reasoning, without such artificial scarcity, there should have been NO research at all being done. Yet, there were 464 drug companies in Italy in 1976. They weren't just sitting there having fun. They were there for a reason -- knowing they could produce drugs and make money in the market, and they could do so without patent protection.

That pretty clearly supports my point. You can nitpick about the data, but there's no nitpicking around the basic facts that there was a thriving pharmaceutical industry there.

If you want additional examples, I'd suggest you look at the history of the Netherlands during the time it banned patents, as well as the industrial growth of Switzerland during the period that it had no (or very limited) patents. Both countries showed tremendous innovation and development (often more than other countries), despite the lack of such artificial controls.

The point remains true: monopolies tend to be inefficient and bad for the marketplace. This is just as true with monopolies on non-scarce products. Limiting the ability to use a non-scarce good as a resource to increase the value of other goods is simply a bad business decision. It is, by definition, shrinking your potential market size.

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You said trademark was the same as copyright.
I challenge you to provide a quote in which I say that trademark is the same as copyright. I simply put them under the same generic concept of "IP". As I said, you may consider trademarks not to be IP, but the rest of the world thinks otherwise.

What I did assume incorrectly (see : no trouble admitting it) is that you were against all kinds of IP. Ok, now I know that for you trademarks are not evil, unlike copyright. Any other kind of IP you don't oppose?

And we're back to Mike says A, Alexander says "that doesn't prove B!" Mike says "well here's something that proves B" and Alexander says "but that doesn't prove A!"
Actually, we have never been there because you have never presented anything that even resembled a proof. You just keep on rambling about irrelevant facts and fallacious reasoning. And of course, you never ever provide any data : we have to believe you just because you say so, because it's "basic Mike-o-nomics" and because you've seen the future.

Yes yes, we know that Ford succeeded for a series of reasons and that Joe Bankrupt went bankrupt. Again, so what? The fact that Ford suceeded is something of a "universal implicator" to you, proving any sort of crackpot business model?

What "scientific proof" do you set up to disprove free market economics? Or what scientific proof do you set up to prove free market economics?
Heh. How pompous - putting an identity between your ideas and free market economics. It's like a crackpot saying that his perpetuum mobile works because "physics works".
"-I have a perpetuum mobile!
-Prove it (or do it yourself and show that it works)
-Uh?! What scientific proof do you set up to prove that phyisics works?"

We are not debating "free market economics". We are debating your specific business model for the movie industry which includes free distribution, producing quality movies at a reasonable rate and remaining profitable, which is something quite different. And it's up to you to come with a nonambiguous experiment that either proves it or disproves it. As I said previously, the burden of proof is on your side, not on mine. But until you do, your theory is not scientific by any means, no matter how you try to twist it. So either admit it and be done with it or provide a test, like all scientific theories do.

That's an economic lesson that's pretty clear. If you can make something more efficiently economically, while using something else (such as brand) to increase value, you can do quite well against the competition.

Define "economic efficiency" and "value" nonambiguously, please, because if you have different definitions for what IP is, you might as well have different definitions for these items, too.

Ok, since your business model is not new, feel free to provide data about it. Here, use this placeholder :

"Making quality movies at a reasonable rate per year, and distributing them for free is a profitable business model, as shown by the following DATA: http://________________"

Economics is predictive.
Glad that you recognize it. So if economics is predictive and your business model is (basic) economics, I'd be happy to see which is your falsifiable predictive test.

I already made it clear that I am doing the same thing in other industries. I'm sorry that you want to stick your head in the sand and pretend it doesn't apply to other industries, but the economics go across the board.

Are you asserting that if a business model works in an idustry sector, this implies it will work in every other industry sector?

Does your business model in your sector provide more or less profits than those using a different business model that does not rely on giving free content?

Surely you watch your competitors, you should have no problem answering that.

Actually, I did answer that question, but once again, you keep switching which question you want people to answer so you can pretend I don't answer it.

You said "MPAA data on things like losses due to piracy is bogus.". The only small problem is that my data -which you dismissed- had nothing to do with piracy. So no, you haven't answered it. And yes, unfortunately for you that nonanswer as well as my data is there for everyone to see :-)

So, you failed (four times now) to answer my question about why did you dismiss as "not worthy of comment" my MPAA data which didn't bear any relation to piracy, while you yourself pointed to MPAA data.

Considering the fact that in a 20 year period the entire world only came up with a little over 1000 such entities, I find that difficult to believe.
Well, wrong as always. During the last 20 years, the FDA approved about 900 NMEs
(http://www2.gsb.columbia.edu/faculty/flichtenberg/schump.pdf)
whereas the number of created NMEs that simply don't make it through approval process has been much higher. Do you understand the difference between produce a NME and produce and get approved a NME?

But anyway, I couldn't care less about that because the point is not whether I can produce lots of NMEs in my garage or not, but whether the Italian industry was producing more new original drugs prior to patent reform than after.

Especially considering that there was no patent protection, they were doing so solely for one reason: to make drugs that could be sold in the market.
So what? A NME may or may not become a drug.

By your own reasoning, without such artificial scarcity, there should have been NO research at all being done.
I've never claimed such a thing. Feel free to provide a quote if you think otherwise.

It defines "innovation" as the number of patents issued. If you're going to complain that NMEs are not a decent proxy, you can hardly use the number of patents as a better proxy -- especially given the change in patent law!
Which is exactly (=quote,please) the sentences in that report that constitute tautological reasoning?

464 drug companies in Italy in 1976. They weren't just sitting there having fun. They were there for a reason -- knowing they could produce drugs and make money in the market, and they could do so without patent protection.
Just because they weren't having fun, it still doesn't prove they were innovating and remaining profitable, either. Do you understand the difference between produce drugs and produce new drugs? Between merely being and being profitable? Look up the definition of "new" (in a standard dictionary, that is) if you have any trouble with it. Or are you saying that all of the 464 drug companies (and I'm taking your word for that) were innovating, being profitable and none was just copying existing drugs? If this is your claim, then provide data for it.
Otherwise your figures are irrelevant to the issue.

And also, which of these concepts is more important to society:
- The number of companies
- The number of employees
- The amount of profits
- The amount of revenues
If you don't agree with any of them, feel free to provide an alternative, or a combination of whatever other numerical indicators you wish.

If you want additional examples, I'd suggest you look at the history of the Netherlands during the time it banned patents, as well as the industrial growth of Switzerland during the period that it had no (or very limited) patents. Both countries showed tremendous innovation and development (often more than other countries), despite the lack of such artificial controls.

Well, if you are using these examples I presume you have already seen the data, so it wouldn't be much trouble for you to provide references to it. When you provide the data (=statistics or research, not babbling), I will answer to that.

Ah, and I remind you that you haven't provided data to back up your assertion that movie ticket sales show positive correlation with increased piracy - a statement you very clearly made previously.

You keep talking and talking and talking but data is always missing. Any request for data is referred to "basic Mike-o-nomics", "look around yourself" and more fluff of that kind.

The point remains true: monopolies tend to be inefficient and bad for the marketplace.
Are you saying that all monopolies are bad? If not, please define a set of objective, nonambiguous criteria for distinguishing.

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I challenge you to provide a quote in which I say that trademark is the same as copyright.

I pointed out that *brand* was important, and you immediately said "aha, so now trademark and copyright are important." Which I had never said. You are focusing on semantics again. I have no problem debating ideas, but your continued focus on semantics is tiring and not moving the discussion anywhere.

Yes yes, we know that Ford succeeded for a series of reasons and that Joe Bankrupt went bankrupt. Again, so what? The fact that Ford suceeded is something of a "universal implicator" to you, proving any sort of crackpot business model?

Again you shift the subject.

Let me explain. I have gone through the basic economics to show why getting rid of monopolies tends to expand the overall market. This isn't some "crackpot" theory. Talk to just about any economist and they'll agree.

I then apply that to intellectual monopoly, and explain why it applies there too. This is taking basic economic theory and showing how it applies to other areas. The test to prove it is for a company to come along and do it. It will happen eventually.

However, the more interesting point is that many in the industry are already doing it -- just without realizing it. They're already selling the benefits of movie viewing, not the movie itself -- even as they think they're selling the movie itself. However, once they realize that they can use the movie itself to sell more of the benefits of movie watching, they'll be able to make more money -- just like getting rid of monopolies expands any market. The "test" that you keep demanding will be clear when a company does exactly that and really frees the content while attaching to it a business model (I suggested quite a few earlier) that embraces using that content to sell something else.

The reason I brought up the Henry Ford case was to show why your question for "data" was irrelevant. Anyone who understood basic economics and Adam Smith's concept of division of labor would understand why Henry Ford's model of production was more efficient -- but they wouldn't have the "proof" you seek. So, I used that example to show why your question was irrelevant. Yet in your own wonderful way, you ignore the point of bringing it up and suggest that Henry Ford's success in embracing the basic facts of economics is meaningless to the discussion -- despite my explanation (apparently not clear enough) of why the analogy makes sense.

You could have made this same argument before Henry Ford came along, and all you'd be saying is "where's the PROOF I should drop my one-by-one manufacturing process of cars and move to assembly line production?"

We are not debating "free market economics". We are debating your specific business model for the movie industry which includes free distribution, producing quality movies at a reasonable rate and remaining profitable

Well, then I apologize for not being clear. We are debating free market economics. The model I have discussed is pure free market economics -- which is widely accepted as being quite accurate. All I'm saying is that we should be applying those same economics, which have been shown to expand the pie when it comes to scarce goods, to non-scarce goods. So, yes, the core of the debate is free-market economics. Your position is that government protectionism, in the form of copyrights is a more efficient mechanism. My position is that the evidence throughout history of economic pies expanding thanks to free market economics suggests otherwise.

Making quality movies at a reasonable rate per year, and distributing them for free is a profitable business model, as shown by the following DATA

I'm not sure why I've been unable to make this clear, and maybe the paragraphs above helped -- but as I said, there's no direct data on this because what we really have is something of a hybrid model, where the industry is falling back on the protections, believing they're necessary, rather than embracing what they're really selling.

I can see why it's somewhat confusing, and I apologize for that. No one has done the *pure* business model I discuss in the space (though some are close to trying...). But, the way the movie industry has worked since inception isn't really that far off. It's just that it seems like not too many people in the industry actually recognize that.

So, you failed (four times now) to answer my question about why did you dismiss as "not worthy of comment" my MPAA data which didn't bear any relation to piracy, while you yourself pointed to MPAA data.

For a fairly simple reason. When you can use a biased data set to prove the opposite point that the publisher of that data intended, that's pretty powerful. When you can only prove the point that the publisher of that data intended, that's not very interesting.

Well, wrong as always. During the last 20 years, the FDA approved about 900 NMEs

No, I was referring to the period under discussion. From 1961 to 1980, when 1282 NMEs were discovered. Of those, 119 came from Italy, by the way.

So what? A NME may or may not become a drug.

But if there weren't any rewards for creating a new drug, as your argument suggests, why would Italian firms be researching NMEs at all? There shouldn't be any money in it. They should all just be copying drugs from elsewhere as you suggest. The very fact that so many Italian pharmaceutical companies were hard at work on discovering NMEs suggests that they realized that artificial monopolies weren't necessary for building a profitable business.

That's all the example is designed to highlight. That if companies believe there are additional business models from which they can profit, they don't need artificial, market-distorting, protectionist policies.

Which is exactly (=quote,please) the sentences in that report that constitute tautological reasoning?

"Patent protection also unleashed a wave of innovation among Italian pharmaceutical companies; between 1986 and 1991, the number of European patent applications by Italian pharmaceutical companies more than tripled totals of the previous five years."

In other words, patent protection unleashed innovation, and to prove it, you can see it in the fact that patents increased. That's pretty tautological.

Or are you saying that all of the 464 drug companies (and I'm taking your word for that) were innovating, being profitable and none was just copying existing drugs?

No. I'm not saying that at all. Certainly, some of them were copying existing drugs. But, that's the whole point with this type of model. Of course someone will be there copying what you're doing, but there are ways to still build profits above and beyond that (through bundling it with other things and continually innovating). The reason other firms kept innovating was because they recognized that's one way to keep a premium on the firms that just copy.

There's TONS of research on how competition (without protectionism) drives innovation, so I'm not sure I need to point to any of it, but if you want a decent example of a case where it's true with "intellectual property" that isn't patented, you can look here:

If you don't agree with any of them, feel free to provide an alternative, or a combination of whatever other numerical indicators you wish.

When it comes to the pharmaceutical industry, the most important point to society is none of your list, but its the health of people in the society. That's the market that the companies are in. The healthier they are, the better overall impact on society. If you want a sense of how to put a dollar value on it, there are plenty of places to look, but here's a good place to start:

Well, if you are using these examples I presume you have already seen the data, so it wouldn't be much trouble for you to provide references to it. When you provide the data (=statistics or research, not babbling), I will answer to that.

You can look up Eric Schiff's work, which predates the web, so I can't point you to a URL.

Ah, and I remind you that you haven't provided data to back up your assertion that movie ticket sales show positive correlation with increased piracy - a statement you very clearly made previously.

I don't believe I made that statement directly -- and if I did, I was mistaken and apologize. What I *meant* was that a coordinated campaign that used the content as a promotional vehicle, in combination with a business model that was designed to profit from related activities would work well together.

However, there is *some* evidence that high piracy rates do correlate to ticket sales. We've previously discussed here on Techdirt the tremendous number of downloads for the most recent Star Wars movie, followed by record breaking attendance at the theater.

Are you saying that all monopolies are bad? If not, please define a set of objective, nonambiguous criteria for distinguishing.

Monopolies tend to decrease economic efficiency. I don't think you'll find very many economists who disagree. I'm not sure what the point of the second half of your question is. It seems like a trolling question designed to make me work for no discernable purpose (much like many of your earlier questions).

Again, I am no longer actively following this thread, but there have been a few interesting blog posts that have pointed back here, so I answered your questions. I have tried to express my position clearly, and I realize that I have failed in some cases, and the only reason I keep responding is in part to try to clarify where the confusion is. However, it seems clear from your tone in responding, and your repeated need to repeatedly pretend that my explanation for A is problematic because it doesn't explain B, that you are only responding here for a sense of fun, rather than any serious discussion on the topic.

If you are seriously interested in discussing the topic, then I apologize, but it does not appear that way from your posts. Therefore, I'm not sure how much value there is continuing the conversation if you only are going to continue this line of questioning that is more designed for taunting than any serious look at the topic.

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I pointed out that *brand* was important, and you immediately said "aha, so now trademark and copyright are important."
And from this somehow you concude that I consider trademarks and copyrights to be the same...

Which I had never said. You are focusing on semantics again.
Well, semantics does matter in your case, because the semantics you put in your words is different from what the rest of the world puts in them. According to your Mike-tionary, for example, trademarks are not IP.

This isn't some "crackpot" theory. Talk to just about any economist and they'll agree.BEEP Argumentum ad Varecundiam logical fallacy (http://en.wikipedia.org/wiki/Appeal_to_authority)
Of course, no crackpot will ever admit his theory is a crackpot theory. And unfortunately for you, science is not a democracy. Only crackpots do popularity contests when it comes to research. Science works by proof and data, not by "Einstein agrees with me".

And using weasel words (http://en.wikipedia.org/wiki/Weasel_words) doesn't help your position. "Monopolies tend to... "? What's that? Do they or don't they? When? Under what circumstances?

"Crackpot: Pigs tend to fly
Skeptic: hey, look at these real pigs. They don't fly!"
Crackpot: Well, I didn't say ALL pigs fly.
Skeptic: So can you define a set of objective, nonambiguous criteria for distinguishing between those who fly and those who don't?
Crackpot: Pigs tend to fly. I don't think you'll find very many zoologists who disagree. I'm not sure what the point of the second half of your question is. It seems like a trolling question designed to make me work for no discernable purpose (much like many of your earlier questions)."

Again, more generic blah blah blah from you.

But I'll be clear : If monopolies are so bad, why do you insist on allowing IP-based monopolies? Because trademark protection does establish a monopoly. Or is it that maybe not ALL monopolies are bad? May I use your Techdirt brand and logo in my business? Economic efficiency rules, after all, doesn't it?. Why should I innovate if I can simply use yours?

You'd benefit from learning some basic logic as well, since your sloppy use of implications is mindboggling From a nonuniversal quantifier you cannot imply anything for your specific object of interest:

"1. getting rid of monopolies tends to expand the overall market
2. Let's examine IP Monopolies
3. For an IP monopoly, getting rid of it will expand the market"

"1. Cats tend to be gray"
"2. I have this cat"
"3. Therefore, it's gray"

As I said, learn some logic first.

The test to prove it is for a company to come along and do it
Hah, like a genuine crackpot you keep answering nonquestions. I didn't ask a test for proving your theory. Don't you know what falsifiability is? Don't worry, crackpots also fail to understand this cornerstone concept the scientific method. It is a test that proves your theory to be false. See http://en.wikipedia.org/wiki/Falsifiability if you have troubles with the concept. So you see, I'm asking for the test that disproves your theory.

So, you have now failed SEVEN times to anwser a very simple question that every scientist is taught to ask himself: What experiment proves you wrong? Every scientific theory is falsifiable. Is your theory scientific? Then provide a non ambiguous experiment or put up and admit it is not scientific. I also asked you if you contemplated the possibility of being wrong, and you dindn't answer such an obvious question, SEVEN times in a row now. Wow! What an ego!. Even Einstein and Newton contemplated the possibility of being wrong and pointed to experiments with a falsifiable outcome, but not Mike. Mike's above such puny earthly beings. His theory "just works".

Anyone who understood basic economics and Adam Smith's concept of division of labor would understand why Henry Ford's model of production was more efficient
Yeah yeah Mike. As I said time and time again, it's easy to "predict success" a posteriori. Wow - According to you anyone who understood basic economics should have seen Ford would be a success, yet somehow it took 15 years for that production model to appear, (and it wasn't applied first by Ford, BTW). How's that? Nobody but Ford in the whole damn world knew basic economics in order to make a business model more efficient? Every year thousands of companies go bankrupt, and many of them have quite a few economists working there at managerial positions. How's that? Don't they know their basic Mike-o-nomics?
As I said previously, if you have such an ability to know in advance whether a business model will work or not, it's inexplicable that you are not a billionaire. But probably, it's most likely the case that like all would-be future-tellers your crystal ball works only in reverse.

Past anecdotical examples don't prove anything. Well, your continuing use of them only proves that you have no proof at all. Quoting over and over again that someone succeeded under some circumstances won't make you right. No matter how much you try, it is, and wll remain irrelevant.

You could have made this same argument before Henry Ford came along, and all you'd be saying is "where's the PROOF I should drop my one-by-one manufacturing process of cars and move to assembly line production?"

BEEP. Undistributed middle logical fallacy (http://en.wikipedia.org/wiki/Fallacy_of_the_undistributed_middle): "You are laughing at me, and you'd have probably laughed at Galileo, too". I'll let Carl Sagan reply: "They laughed at Galileo, they laughed at Copernicus, and they also laughed at Bozo the Clown". Yes I am laughing at your ideas. And MAYBE I would have laughed at Einstein back in 1908, and MAYBE I would have laughed at the aether theory. Einstein was right, and the aether theory was wrong. So what? The problem for you is that whether I laugh or not at someone or whether I would have said something back in time still doesn't prove you right.

And of course, as I keep saying, Ford did it himself, while you preach others to do it. Quite a difference.
It didn't escape me, by the way, that you didn't answer two very specific questions.

1) Are you asserting that if a business model works in an idustry sector, this implies it will work in every other industry sector?

2) Does your business model in your sector provide more or less profits than those using a different business model that does not rely on giving free content? Surely you watch your competitors, you should have no problem answering that.

Not quoting them will not make me forget them.

So, you failed (four times now) to answer my question about why did you dismiss as "not worthy of comment" my MPAA data which didn't bear any relation to piracy, while you yourself pointed to MPAA data.

For a fairly simple reason. When you can use a biased data set to prove the opposite point that the publisher of that data intended, that's pretty powerful. When you can only prove the point that the publisher of that data intended, that's not very interesting.

ROTFL :-)
"Skeptic: You are wrong. Look at this data.
Crackpot: But the publisher of this data had the intention of proving me wrong! And it is biased! Sorry, that's not interesting data. It's so funny it isn't worth commenting.
Skeptic: ?!"

So according to your reasoning, the only data that is 'interesting' is data that proves your point. If I use a dataset X to prove you right, dataset X is correct. If I use it to prove you wrong, the same dataset X is wrong! :-)
Genuine 100% crackpottery. And Self-confessed, no less!

In my reality, data is data, which is the good thing about it - that it is not subjective.

The model I have discussed is pure free market economics -- which is widely accepted as being quite accurate.

Making quality movies at a reasonable rate per year, and distributing them for free is a profitable business model, as shown by the following DATA

I'm not sure why I've been unable to make this clear, and maybe the paragraphs above helped -- but as I said, there's no direct data

Are you using also your own version of logic?

1. The business model is not new
Yet, somehow
2. There's no data on it.

"
Crackpot : If you drink pee you'll get healthier.
Skeptic : Uh? Is this something new?
Crackpot: No, many people have already been doing it. They just weren't aware of it.
Skeptic: ?!!? Do you have any data about this?
Crackpot: No, there's no direct data. But Ford was healthy! And It's basic mikedicine"

Sorry, but get your logic together before trying to prove anything.

Well, if you are using these examples I presume you have already seen the data, so it wouldn't be much trouble for you to provide references to it. When you provide the data (=statistics or research, not babbling), I will answer to that.

You can look up Eric Schiff's work, which predates the web, so I can't point you to a URL.

Oh sure, Mike. Just like anything else, we all have to just take your word for your baseless claims. The world is not reduced to URLs. There were books and journals prior to the web, just in case you didn't know. And there was an artifact called "bibliographic reference" that was used in science to quote others. So don't be shy and provide a FULL BIBLIOGRAPHIC REFERENCE to the work instead of just dropping a meaningless name.

Ah, and I remind you that you haven't provided data to back up your assertion that movie ticket sales show positive correlation with increased piracy - a statement you very clearly made previously.

I don't believe I made that statement directly

Yes you did. Here:In the meantime, I'll note that in your latest tangent obsession, you fail to explain how movie sales are increasing in places where piracy is a major issue..

However, there is *some* evidence that high piracy rates do correlate to ticket sales. We've previously discussed here on Techdirt the tremendous number of downloads for the most recent Star Wars movie, followed by record breaking attendance at the theater.

BEEP. Post-hoc ergo propter-hoc logical fallacy (http://en.wikipedia.org/wiki/Post_hoc_ergo_propter_hoc).
Time sequentiality does not imply causation. As I said, get your logic together if you want to be taken seriously.

"Patent protection also unleashed a wave of innovation among Italian pharmaceutical companies; between 1986 and 1991, the number of European patent applications by Italian pharmaceutical companies more than tripled totals of the previous five years."

In other words, patent protection unleashed innovation, and to prove it, you can see it in the fact that patents increased. That's pretty tautological.

Do you understand the difference between "patent" and "patent protection"? Seems not. It's even more basic than basic economics: its basic reading comprehension.

"Protection of X unleashed a wave of X : between year1 and year2, the number of X more than tripled the totals of the previous five years".
If you think this is tautological, then these are, too:

"Protection of internet domains unleashed a wave of internet domain registrations; Between year1 and year2 the number of internet domains registered more than tripled the totals of the previous five years".

"Protection of californian land-claims unleashed a wave of land claims : between year1 and year2 the number of gold-rushers with land claims more than tripled the totals of the previous five years".

The author is providing data proving that protection of something has increased that something. You may or may not agree with the underlying assumption that "A Patent represents an Innovation", but that doesn't make the statement tautological, because he is not proving that assumption in any way. Look up what tautology means. Given the continued use of logical fallacies in your reasoning, you are in not in a very good position to identify logic artifacts.

Or are you saying that all of the 464 drug companies (and I'm taking your word for that) were innovating, being profitable and none was just copying existing drugs?

No. I'm not saying that at all. Certainly, some of them were copying existing drugs. But, that's the whole point with this type of model.

ROTFL :-)
Mike: "There *was* plenty of effort put into drug discovery without patents : There were (..drums...) 464 drug companies in Italy producing drugs!"
Alexander : "Are you saying that all of the 464 drug companies were innovating and profitable?"
Mike: "I'm not saying that at all! But that's the point!"

Talk about circular reasoning. May I remind you that we were speaking about innovation and not just production? And sorry, not some of them were copying, but most of them were copying, as acknowledged by the same study you quote over and over. The problem with copying is that someone must make the discovery first, by investing his own money.

And here you have some more data, although since it proves you wrong, probably it's "not interesting". It definitely shows positive correlation between patent protection and R&D budgets.

But as I have said many times, even if you don't want to provide any data, simply SHOW US that it works: Get a huge loan for about $800 million (current estimated costs for researching and producing a new drug), and publish the formula and industrial synthesis method for free. Or produce a series of movies (studio quality, and at a reasonable yearly rate)

Re: Patents

Patents do limit the availability of the recipe, but are limits imposed by regulation and are intended to be for a limited time. See the U.S. Constitution - Article 1 Section 8, and note the phrase "limited times". When a patent expires the recipe is no longer a scarce good.

bah

Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re

Alexander....thanks so much for taking the time to deconstruct Mike's deeply flawed logic system and total lack of reality when it comes to what it takes to drive value in the world today. His Alice in Wonderland views of the future of intellectual property combined with his revisionist hindsight makes for some of the most ludicrous opinions I have ever read.

Recently, responding to one of his many rants about the "obviousness of software patents" I challenged him to write a paper about the obvious inventions of the next 5 years, which would end the problem. (since his paper would be prior art for any software patents filed in that period.)

Perhaps some of the $800 million dollar loan you refer to for Mike to develop a new drug and then release it for free could be used to create the obvious new software inventions as well...which he could release for free as well.

How will he pay back the $800 million? According to Mike's usual logic...its easy...it is most certainly some undiscovered business model out there waiting to be exploited. Hmmmm.....

data and the obvious

Short version of Mike:
People will pay for quality, reliability, and trustworthy content.
Free content has no backing so it may be low quality, not reliable or have malicious embedded content.
DRM by definition makes things less reliable (won't play; expires; etc.); is not trustworthy**; and may limit quality of content via Varian's versioning argument*.
In the choice between DRM and free, free is better.
The choice between DRM-free and free as in beer, DRM-free is better even at a price. Thus Apple rakes in money selling that which can be downloaded.

Summary: Mike does not reference well but he has a clear understanding of the issues.

In another comment I point to the time series data which illustrate that movies downloads generate sales:
Michael D. Smith and Rahul Telang, Competing with Free: The Impact of Movie Broadcasts on DVD Sales and Internet Piracy DIMACS Workshop on Information Security Economics January 18 - 19, 2007 DIMACS Center, Rutgers, NJ.http://dimacs.rutgers.edu/Workshops/InformationSecurity/slides/smith.ppt

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Re: Oh Come On!

> Like shareware, perhaps 5% of the people will pay for
> music. The rest will just listen. As they are doing today.
> At this level of compensation there is no "promotion" or
> radio air play. We are looking at a significant change in a
> large segment of the Western economy because of this.

Why? These people were probably "just listening to the radio" before. Content has ALWAYS been gratis. There have been easy and legal means for people to get content without paying for it. "Piracy" wasn't even necessary. You could just turn on the radio or TV.

Back in the day, getting to listen/watch some work once was pretty trivial to do for free. It was also perfectly legal.

Re:

> But I propose you a challenge. Let's say I'm as talented
> as [insert your favourite director here]. No one knows
> me, and I want to make a movie. Let's assume that we both
> know 100% for sure people will like this movie. Combined
> production costs are $10M. Ok, now tell me - what do I
> do? (specifics, please, no generic reasoning). Where do I
> get this money from?

"No one knows" you would be the big hurdle. Nevermind anything else.

Now lets examine a scenario that's much less of a fantasy:
You have done the "spending 2 years writing a book bit" and now have yourself a publishing deal. You've sold your soul to the old school publisher hoping t get rich.

Now you find yourself doing your own promotion because your publisher really doesn't care about you. Unless you are Metallica or JK Rowling you just don't get any effort spent on you. You are stuck doing your own promotion and selling your own book.

This is publishing's dirty little secret. Well, it's not really a secret if you actually bother to "follow" artists that aren't in the Top 10. A successful indie band or cult author may find that they make less than a waiter at Denny's. This has nothing to do with "piracy".

The market may be small. They may be under promoted. And the publisher gets a big piece of the action.

Re: Not so fast

I also agree that artists need compensation, but I am somewhat more cynical about the role of the labels. The role of the big labels has been primarily one of channel control. By ensuring that channels such as record stores, radio and TV all sold and played their content they had control over which artists became successful.

Artists sign up because they know that without a record deal they can't get on the radio, won't get onto TV and won't be able to get CD's in music stores.

Now, along comes this upstart Internet thingy and suddenly musicians can promote and sell their content online. Perhaps not everyone, but a substantial number of people are willing to buy content to support the artist. And the thing is that an artist only needs to get 10% of the revenue they did from the traditional distribution model before they are earning more.

The real threat to the big labels isn't that people will steal existing music they are selling, but that artists will realise that they don't need them any more, and they will lose control of the channel. Their power is in their control of what music we hear; if they lose control of what we listen to the game will be over.

DRM therefore isn't about protecting the content at all. Its about protecting the channel. It's about ensuring that you won't get a recorder which will play nice with your computer. That way it will block artists who are not signed up and not transmitted on traditional TV from accessing the digital TV ecosystem via the Internet.

Do YOU actually know any economics?

Making a public good into a private good is not a good thing. It's actually a destructive act.

Internalizing externalities is a good thing, but you don't do that by making a public good into a private good, at least not in most cases. In most cases you destroy positive externalities without internalizing negative externalities -- disaster, economically speaking. DRM is one of those "disaster" cases.

I was dissapointed with this article.

I feel that your article makes a 1 dimensional point that can be summed up as: DRM is not an effective use of resources. Though I agree with your point that it only hurts the end-user and does little to nothing to curb the prevalence of digital piracy, I fail to see what your article contributes to the discussion beyond that of waving a stick around shouting "Digital Rights Management iz retard'd." Please construct your arguments using examples and evidence in the future. To satirically illustrate my point, please consider my comments in light of this quote:

"Now is the winter of our discontent made glorious summer by this son of York," -Shakespere, 'Richard III' I quoted an irrelevant partial thought written by a dead Englishman and now my argument has weight.

Good DRM is DRM that nobody even notices/thinks of as DRM. Look at steam, this is technically DRM but its not an issue because steam makes content more accessible instead of less!

The problem is the companies that tend to want DRM almost always want bad DRM. This is because it really isn't about what they say it is. DRM is frequently being used to leverage control (not just of end users, but between companies) and prop up outdated business models against new competition.

Rights Enforcement Encryption

DRM is designed to work as ReEncryption Economics and its Practice Model that equates Copyright-Protection with Copyright-Promotion, meaning that Security and Productivity aren't Trade-Offs.

After Aereo, Outline what's happening now is that Consumers are allowed to set Two Legal Choices via Cloud License Server to "provably" re-transmit the Free OTA Broadcast over the Internet, One is Provable Secondary Use like Virtual Cable Operator with Section 111 License and the Other is Provable Fair Use with Section 107 Defense to a Claim of Copyright Infringement.

Just Look at Keurig

I remember back when Keurig and Tassimo were just entering the market. Tassimo had a massive marketing movement behind it and I knew a lot of people jumped on it. I wasn't satisfied with it due to the barcode reader requirement for the pods not to mention a higher price than Keurig. Keurig I was impressed with for the fact any generic pod could be used and the conventional grinds could be used. I simply chose Keurig just for that feature over Tassimo. When I wanted a unique flavour coffee I'd pick up a few boxes of pods.

Present day .. Tassimo just isn't easily found on the shelves, Keurigs are; THEN the CEO knucklehead decides to go DRM styled pods and machines ... a la Tassimo ... When the time comes my Keurig goes down, I'm done and out.

"Digital Restrictions Management"

What is stopping a business from rendering DRM content that was legally purchased unusable forcing the "owner" to pay more money to listen to or view this content? What is stopping a company from rendering a legally owned copy unusable if it is sold to someone else even if there was nothing restricting this owner from selling their copy to someone else? In such a transaction the creator doesn't make profits since this person purchased the content from this person used rather than buying a brand new copy. What if legally purchased content is incorrectly flagged as illegally purchased content? Under DRM a person no longer physically owns this content and a company could decide to render their content useless at any time or their content could be inadvertently rendered useless due to a software bug.

Your buying the product doesn't mean it is yours. You have the right to listen or watch for personal use, and that right can be rescinded. Just ask the folks in Redmond. That being said there are many ways to circumvent DRM, there is big business in software that does it, and advertises it as such. But a simple screen recorder or an audio out line to the microphone in line should have the desired effect. itunes is big business, who would have thought? Not me, I would rather purchase a hard copy so not to be beholden to Cupertino.